Buy-to-Let Interest Rate Relief Cut

There are only six months left until government starts gradually restricting finance cost relief for buy-to-let landlords over a four-year period, with the first 25% cut on costs being introduced on 6 April 2017.

The measure, which was introduced in the summer Budget 2015, will restrict relief for finance costs on residential properties to the basic rate of income tax, with the restriction fully coming into place from April 2020. These finance costs include mortgage interest, interest on loans to buy furnishings and fees that incur when taking out or paying back these mortgages and loans.

Buy-to-let landlords will be able to deduct 75% of finance costs from rental income in 2017/18 and use a 25% basic rate tax reduction. This becomes 50% finance costs deduction and 50% of basic rate tax reduction in 2018/19, then 25%/75% before reaching 0% deduction of finance costs and 100% basic rate tax reduction in 2020/21.This restriction does not apply to companies or furnished holiday lettings.

There has been uproar about these measures with two buy-to-let landlords forming a fundraising exercise with campaign group ‘Axe the Tenant Tax’ to launch a judicial review of Clause 24 of the Finance Bill 2015.However, on 6 October 2016 they were unsuccessful at the High Court but have vowed to continue to push the case to government.

Our view is that these proposed restrictions on the tax deductibility of interest for private buy-to-let investors is one area that should be reconsidered by the Government. This would be in the interests of both Landlords and tenants.