Removal of tax relief for interest costs on property loans

On 8 July 2015 George Osborne announced that relief for interest costs on loans taken out by residential property investors will be cut. What is happening ? and what does it mean ?

If you have no borrowings, it will not affect you.  However, if you have mortgages or loans on which interest is paid, at present, subject to certain limits, full income tax relief is available for interest paid on those loans.

From April 2017, the tax relief will start to be restricted.  The restriction cuts deeper in each subsequent year, so that by 2020 tax relief will be capped at just 20%

More than ever, this will result in tax being payable on a paper profit, as opposed to a cash profit and those landlords with significant borrowings may be faced with some very scary tax bills.

SHOULD I GO LIMITED ?

The finance cost relief restrictions will not apply to limited companies. Therefore, there has been much discussion about landlords transferring their rental business to a limited company in order to continue to benefit from unrestricted finance cost tax relief. However, there are significant tax points to be considered and advice should be sought.

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