For individuals who let properties, finance costs such as mortgage interest paid, will no longer be a tax deductible expense in arriving at your property rental profit that is taxed.
Instead, HMRC will give a tax reducer of 20% to reduce your tax bill by the amount of the relevant finance cost.
The new rules are being phased in over this and the following 3 tax years.
This means that not only will higher rate (40%) tax payers pay more tax, as they will now only get half of the finance cost effectively as a cost to reduce their tax, but it could have other affects, such as bringing in basic rate tax payers into higher rate tax. This is because the rental profit will be calculated excluding the finance costs, pushing the rental profits much higher. The 20% tax reducer is only applied after the marginal rate of tax (40%, 20% or 45%) for the individual has been assessed.
This may push many property owns into a rental loss after they have paid extra taxes, if they are higher geared, or their rental yield compared to other costs is low.
If you are in the Guildford area, and looking for an accountant to prepare your property rental tax return, and advise you, please do give us a call.