Summer Budget 2015: Buy To Let landlords – restriction on interest relief from April 2017

Under current legislation, individuals who use debt to finance the acquisition of residential buy to let properties can claim a tax deduction for finance costs incurred in servicing that debt.

From April 2017, tax relief for interest and finance costs will be restricted for residential buy to let individual landlords. The changes will not affect qualifying furnished holiday lets. The restrictions will be phased in over four years, resulting in tax relief only being available for finance costs at the basic rate of income tax (currently 20%) from April 2020. The restrictions will be phased in as set out below:

Tax Year % Fully Deductible Finance cost % Restricted to Basic rate of tax
2017/18 75 25
2018/19 50 50
2019/20 25 75
2020/21 0 100

 

The private landlord sector has increased significantly over the last decade with many individuals looking to supplement their income through property investment. Coupled with the proposed changes to Wear and Tear allowance and the risk of rising interest rates, these restrictions on finance costs are likely to lead to increased rental demands by individual landlords in the short to medium term. However, while the property market continues to show healthy capital appreciation, it seems unlikely to lead to these individuals selling their properties and leaving the market.