Budget 2015- Restriction of interest relief on residential investment property held by individuals
From 6 April 2017, the rate at which tax relief is given for interest payments made by owners of residential investment properties will taper, so that by 6 April 2020 interest costs will be relieved at the basic rate of tax (20%) only. Currently interest costs are deductible for individual landlords at their highest tax rate.
The change is being phased in over four tax years:
- In 2017/18 three quarters of the interest costs will be relieved at the taxpayer’s highest rate, the remaining quarter at 20% only;
- In 2018/19 half of interest costs will be relieved at the taxpayer’s highest rate of tax, the remaining half at 20% only;
- In 2019/20 a quarter of interest costs will be relieved at the taxpayers highest rate of tax, the remaining three quarters at 20% only;
- From 2020/21 all interest costs will be relieved at the basic rate only.
MHA MacIntyre Hudson comment
Many have contrasted the current generous tax regime for interest payments on buy to let properties with the lack of tax relief given to borrowing to acquire other investment assets (e.g. stocks and shares). This change starts to level the playing field. The change is unlikely to affect long established buy to let landlords with low gearing. Those with larger portfolios may find that a corporate wrapper is now more attractive.
The changes are likely to affect inadvertent landlords and those who have entered the buy to let market in recent years and are highly geared. They could find that the restriction of the tax relief has a marked effect on the after tax yield from the property. By contrast, individual owners of commercial property will be unaffected by the proposal.