Category Archives: Taxation of Rental Income

Rental Income Taxation Changes

Rental Income Taxation Changes

Rental Income Taxation

If you are a landlord with residential properties there are certain changes on how much tax relief you will be able to claim from 6 April, 2016 and 6 April, 2017.

The Wear and Tear Allowance

Up until 5 April this year, landlords of furnished residential properties could claim 10{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} of the rent received (less certain expenses) against tax to cover maintaining and replacing the furnishings and equipment.

From 6 April, 2016 this has been scrapped and replaced by a new system allowing landlords of residential property to deduct only the actual costs incurred in replacing furnishings and equipment.

This change does not affect landlords of furnished holiday lettings as they are taxed differently.

Tax Relief on Mortgage Interest

From 6th April, 2017, the amount of tax relief you will be able to claim will be restricted to 20{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} of the mortgage interest or other finance costs.

If you are a basic rate tax payer, this change will make no difference to you.

However, for higher rate tax payers, you will no longer be able to claim 40{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} or 45{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} tax relief as now, you will only be able to claim 20{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214}.

This change is being phased in over three years to help landlords who are higher rate tax payers as follows:

      • 6 April, 2017 to 5 April, 2018 the deduction from property income (as is currently allowed) will be restricted to 75{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} of finance costs, with the remaining 25{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} being available as a basic rate tax reduction
      • 6 April, 2018 to 5 April, 2019, 50{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} finance costs deduction and 50{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} given as a basic rate tax reduction
      • 6 April, 2019 to 5 April, 2020, 25{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} finance costs deduction and 75{8ee99a90b51e2217d12101096daf2ee9e40c43b9c2fa413e32f91dd0a196a214} given as a basic rate tax reduction
      • from 6 April, 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction

The changes in rental income taxation may deter some higher rate tax payers from investing in ‘buy to let’ properties. If you are affected, you should contact your accountant or financial adviser.

Please note that this change does not affect landlords of furnished holiday lettings.


The above is not exhaustive and is for guidance only and you should consult your accountant or other professional adviser before taking action on any of the above. See the Disclaimer

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