Restriction of Mortgage Interest Tax Relief
The governments’ plan is to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows
2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%
2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief
For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax
These rules will not apply to Companies, Companies will continue to claim full relief.
What could a Property Investor do to reduce the impact of these changes?
Here are a few ideas….
- Pension Contributions – Pension Contributions currently receive tax relief at your rate of tax – 20% to 45% – so if you are a 40% tax payer you would need pay half the value of your 20% restricted interest into your pension to mitigate the extra tax
- Change of Use – would your Buy to Let be able to be converted to a Furnished Holiday Let? or anther type of commercial property on which the restriction won’t apply
- Increasing the Rent – Could you charge more to cover the extra tax?
- Spouse Income Tax Elections – If the property is jointly held HMRC assume a 50/50 split of the income but you can change that using Form 17 this might be useful if one of you is a basic rate taxpayer and the other a higher rate taxpayer
- Tax Deductible Expenses – Many landlords overlook expenses at the moment but they could become a lot more important, for example, use of your home, motor expenses, computers, travel and subsistence, phone costs etc
What do you plan to do when the changes take effect?