Changes on buy-to-let finance from 6 April 2018
The restricting of tax relief on finance costs began in April 2017, affecting landlords (individuals, partnerships or trusts) of residential properties.
From 6 April 2018 there will be further changes of the proportion of interest you’re allowed to deduct from your income. This will fall from 75% to 50%. For the other 50% you’ll only receive basic rate tax relief. The first 20% of this remainder can be claimed as a credit against your tax bill.
Tax calculator for 2018-19
Property profits before finance costs = property income – property expenses
Deduction for finance costs = finance costs x 50%
Taxable property income = Property profits before finance costs – deduction for finance costs
Total taxable income = taxable property income + employment income
On first 11,850 (covered by personal allowance) = nil
Remainder x 20% = tax relief
Basic rate relief (at 20%) on the lower of:
– 50% of finance costs
– Taxable property income
– Taxable income over personal allowance
The only exception to the rule is if the landlord is a limited company.
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