Changes are being phased in which restrict the amount of relief available for mortgage interest and other finance costs when calculating the profits of an unincorporated property business. The changes gradually move the mechanism by which relief is obtained from one by deduction to one in the form of a basic rate tax reduction. This will eventually cap all relief for interest and finance costs at the basic rate – where relief is by deduction, it is given at the taxpayer’s marginal rate of tax.
For 2017/18, relief for 75% of the interest cost was given as a deduction in computing profits, with relief for the remaining 25% as a basic rate tax reduction. For 2018/19, the boundary shifts, with relief for 50% of the costs by deduction and relief for the remaining 50% as a basic rate income tax reduction.
For 2019/20, only 25% of the interest costs can be relieved by deduction, with relief for the remaining 75% as a basic rate tax reduction. From 2020/21 onwards, all relief will be in the form of a basic rate tax reduction.
Call us on 01275 852255 to check what the changes will mean for tax liabilities.