By Thomas Julier, Trainee Accountant at Hive Business
If you are a landlord you should already be aware of the changes that are currently underway but for those of you who are not, here is some information on the matter.
In the 2015 Summer Budget, it was announced that HMRC would restrict the level of relief on finance costs to the basic rate of tax. This change is to be implemented over a 4-year period the first of which is this current tax year.
The structure for this reduction is as follows:
What are finance costs?
Finance costs include:
- Mortgage interest
- Interest on Loans to buy furnishings
- Overdrafts
- Any fees occurred due to mortgages and loans
- Discounts, premiums and disguised interest
Will you be affected?
You will be affected if one of the following applies to you:
- UK resident that lets residential properties in the UK or overseas
- Non-UK resident that lets residential properties in the UK
- Individual who let such properties in partnership
- Trustee or beneficiary of trusts liable for Income Tax on the property profits
However, the restriction in finance costs does not apply if you are a UK resident company or a landlord of furnished holiday lettings.
Things to consider
This change will lead to an increase in rental profits and therefore an increase in taxable income. This increase will need to be considered carefully as you could end up paying tax at 40% or higher if this increase puts you over a threshold. Another thing to consider is if you or your partner receive Child Benefits and this increase in income puts you over £50,000 the High Income Child Benefit Charge may apply.
If you would like to find out more about our business advisory services, please get in touch on 01872 300232 or email hello@hivebusiness.co.uk.
