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Phase Two of the Mortgage Interest Tax Relief Changes

by | Mar 28, 2018 | Broker Lenders, Brokers, Client Lenders, Clients

Be Aware of Phase Two of the Mortgage Interest Tax Relief Changes

2018 may have many more regulatory changes in store for landlords, but, as well as being aware of the new rules that may affect the private rental sector, all investors must prepare for phase two of the mortgage interest tax relief changes, urges Landlord Insurance provider Just Landlords.

The last couple of years have been particularly tough for landlords, with many legislative changes coming into effect and much more in the pipeline. As such, it’s essential that landlords stay on top of their responsibilities and understand their obligations. This ensures that you not only protect your investment, but also your tenants.

While the news is filled with reports of a potential ban on letting agents charging fees to tenants and a database of rogue landlords, one of the most important changes to remember is phase two of the mortgage interest tax relief changes. If you are not aware of how these rules will affect your finances, it’s time to get up to date…

Let’s begin in April last year, when the Government introduced the first phase of its mortgage interest tax relief changes. These rules restrict the amount of tax relief that landlords can claim on finance costs relating to their properties to the basic rate of Income Tax.

The changes are being gradually introduced over four years, with the first restriction being brought in last year. For the 2017-18 tax year, landlords could still claim 75% of their finance costs at the higher rate of tax, with the remaining 25% being deducted at the basic rate.

Now, in the 2018-19 tax year, this will fall to 50%. If you haven’t yet considered how the mortgage interest tax relief changes will affect you, you must start working out whether you will be hit and by how much.

In order to ensure that your property portfolio remains lucrative, it’s wise to seek professional financial advice on these new tax rules, especially as the second phase looms.

Furthermore, you must start preparing for phases three and four – in 2019-20, 75% of a landlord’s finance costs will receive basic rate relief, while all finance costs can only receive the basic rate relief in 2020-21.

Some landlords may set up a limited company structure to hold their portfolio, as these are exempt from the new rules.

Although your personal portfolio must be taken into account, one thing is certain – you must understand how these changes will affect your business, particularly ahead of phase two.

Before April rolls around, it’s recommended that you organise your portfolio and prepare for what’s coming. This may mean seeking help and advice from an independent tax professional who understands property investment, who will be able to assess your personal situation.

While many potential new lettings laws are not yet confirmed, this change is – don’t get caught out!

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