Income tax relief for residential landlords – changes ahead

Income tax relief for residential landlords

At present landlords are able to claim income tax relief on the total cost of finance associated with their properties, such as interest on mortgages and loans. However, as of next year, finance costs can no longer be deducted from profit for the purposes of calculating income tax liability.

Instead, once the income tax on property profits and any other income sources has been assessed, a landlord’s income tax liability will be reduced by a basic rate ‘tax reduction’.

The changes will be phased in gradually from 6 April 2017 and will be fully in place from 6 April 2020. During the transitional period, landlords will still be able to deduct some finance costs when working out taxable property profits.

  • 2017/18 - 75% of the interest against rents, 25% basic rate tax relief 
  • 2018/19 - 50% of the interest against rents, 50% basic rate tax relief 
  • 2019/20 - 25% of the interest against rents, 75% basic rate tax relief.

Landlords of furnished holiday lets will not be affected by these changes.