Who is affected?
You’ll be affected if you’re a:
- UK resident individual that lets residential properties in the UK or overseas
- non-UK resident individual 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
All residential landlords with finance costs will be affected, but only some will pay more tax.
You won’t be affected by the introduction of the finance cost restriction if you’re a:
- UK resident company
- non-UK resident companies
- landlord of Furnished Holiday Lettings
You’ll continue to receive relief for interest and other finance costs in the usual way.
Landlords with high loan to value rental portfolios will be the most affected;
Landlords with buy to let mortgages in the 40%-45% tax brackets will pay more tax;
Those in the 20% bracket may pay more if their gross income (rental and other income) is greater than £45k, which in turn could affect child tax credits you receive and student loan repayments.
IN SHORT... Section 24 of the Finance (No. 2) Act 2015 might mean that over half of UK landlords will be pushed into a higher rate of tax despite their income not having increased, and some might end up renting at a loss. Starting in April 2017, mortgage, loan, and overdraft interest costs will not be considered in calculating taxable rental income. Until now, landlords have been able to deduct the full cost of their mortgage interest payments on their rental properties before they pay tax.
Section 24 applies to:
UK resident landlords with residential rental properties anywhere in the world
Non-UK resident landlords with UK based residential rental properties trusts and partnerships with residential rental properties Section 24 will mean that most landlords will have to pay extra tax of 20% or more of their annual mortgage interest and other finance costs. ... Any higher rate taxpayer (HRT) whose mortgage interest is 75% or more of their rental income, net of all other expenses, will see all of their returns wiped out by 2020.