Landlords prepare now for April interest relief changes

23/09/2016

If you are a residential property lettings landlord, the amount of interest relief you can claim on financial costs will gradually reduce between 6 April 2017 and 5 April 2020. Reductions in mortgage interest relief will deliver the biggest blow. With less than six months to go before the changes take effect, landlords should take action now to protect their cashflow and maximise tax efficiency for the future.

Whether your properties provide you with income, or are an investment for your retirement, you need to review the impact of upcoming changes to interest relief. These changes will affect your taxable income so you need to understand how and when you will be impacted.

The reduction to interest relief for landlords will affect you unless you:

• are letting a residential property that meets all the criteria for a furnished holiday let; or
are running a property business through a company, Finance costs include mortgage interest, interest on loans to buy furnishings or a motor vehicle used in the management of the property, and fees incurred when you take out or repay mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

If you are affected, the proportion of finance costs you can offset against rental income from your residential buy to let properties will gradually reduce from April 2017. By tax year 2020/21, you will only be able to claim a tax deduction for these costs at the basic rate of income tax in your annual tax computation.

With the right accounting and tax planning advice, you can minimise the impact that this change will have on your cashflow and your personal financial goals. Crunching the numbers sooner rather than later means you will have more options open to you and time to implement them.

It’s important not to limit your planning to these changes alone. Other tax changes that are taking place may have an impact on how you structure the business, if or when you dispose of properties and whether you choose to expand your portfolio.

Taking a broader view of the changes, with the support of professional advice, will help you put a plan in place that works for you now, as well as in the longer term.

For help and advice on your residential lettings or rental business, please contact Anne-Maree Dunn