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CH Accountancy
CH Accountancy

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Mortgage Interest Changes for Landlords From April 17

Currently Landlords are able to claim the full amount of interest paid on their buy to let mortgage as an expense, however the Summer 2015 budget introducted changes to this.  These changes will start to take effect from April 17, for the 17/18 tax year, and are being phased in over the next few years.

Under the new rules mortgage interest will not be included in your expenses, but you will still be able to claim relief of 20% of the interest you pay.

This means that your taxable income will now increase, although if you then remain in the Basic Rate tax bracket you will not actually pay any more tax.  For example (ignoring any other expenses) - currently if your rental income is £15,000 per year, and your mortgage interest was £10,000, then your taxable income would be £5,000 for the year, and you would pay 20% tax on this.

However, under the new rules, your income would be the full £15,000.  This may not sound a problem, however if you have multiple properties, or employment income as well, adding these together could take you over the threshold and into the Higher Rate bracket.  

This increase could also affect claims for Child Benefit and Income Tax Credits.  The only good thing is that the higher rate bracket will have risen to £50,000 before the changes take full effect in 2020.

Here are a couple of examples, so you can see how it will affect you:

Basic Rate Taxpayers

Basic Rate Taxpayers Example

 

Higher Rate Taxpayers

Higher Rate Taxpayers Example

As you can see, the Basic Rate taxpayers will only be affected if the increased income pushes them into the Higher Rate band, however if you are a Higher Rate taxpayer, the tax you pay will unfortunately increase.

I hope this has helped you to understand the new rules a little better, if you would like a consultation to discuss further please do not hesitate to contact me.

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