Introduced in the April 2017 budget, landlords have been gradually loosing tax relief on finance costs and mortgage interest for letting residential property.

The restriction does not apply to commercial property or furnished holiday lets, so if you are considering buying a second property and need finance to do so, a holiday let may be a good option.  However, remember that holiday letting will require more work as a regular change over will be needed.

The effect of the restriction to finance costs means that residential landlords are no longer able to deduct 100% of the finance costs from the rental income.  Instead, they will eventually only receive a basic rate tax deduction.

The restriction is being gradually phased in and for 2019/20 25% of the finance costs will be allowed as a deduction from your rental income, the remaining 75% will attract 20% tax relief only.

This measure may have some unusual results and you may find that your taxable income increases into the higher rate tax bands.  This could also affect your entitlement to child benefit.

Thankfully there are ways to mitigate the effects of this measure, so if you are a landlord and have borrowings against your rented properties, please get in touch to find out how we can help.