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Landlord tax changes under section 24

Landlords are currently able to deduct the full cost of mortgage interest payments from rental income before paying income tax. But Section 24 of the Finance (no. 2) Act 2015 means that Landlords will gradually no longer be able to deduct mortgage interest or finance costs against rental income. Any rental profit will then be taxed, and landlords may then claim a reduction in tax owed, at the value of their mortgage interest, profits or income and finance costs multiplied by 20%. 

For income tax purposes, all rental income will be considered as personal income, without deducting mortgage interest costs first.

The amount of income tax relief that higher rate tax paying landlords receive on their mortgage will be effectively reduced from 40% to 20%, and for top rate payers from 45% to 20%

Existing landlords with a mortgage who are on the higher or top rate of income tax will see an increase in their tax bill. Landlords who are currently on the basic rate will be affected in one of two ways:

  • If a landlords gross annual rental income plus other income is below the higher rate income tax band (£45,000) then their tax liability will remain unchanged. 
  • Some landlords who currently pay the lower rate may be pushed up into the higher rate band. This will apply to those whose gross rental income plus other income is above £45,000, not just those whose net rental income (once finance costs have been deducted) are above that level

The changes will come into effect from April 2017 and be gradually implemented over the next 4 years

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