Interest relief on borrowings to purchase residential lettings and allowed against rental income will be restricted. The measure will be phased in from 2017/18 and will only affect individuals who are higher rate taxpayers. A basic rate taxpayer will be in the same position as at present. Relief for interest paid will be restricted as follows:-
- 2017/18 75% of the interest cost will be allowed in full and 25% relieved at the basic rate.
- 2018/19 50% of the interest cost will be allowed in full and 50% relieved at the basic rate.
- 2019/20 25% of the interest cost will be allowed in full and 75% relieved at the basic rate.
- 2020/21 All relief be given at the basic rate of tax only.
The relief will be given as a reduction against the individual’s tax liability and any unrelieved interest can be carried forward to future years; another complication for taxpayers to grapple with!
From April 2016 the current system of allowing wear and tear allowances for furnished lettings will be replaced by the renewals basis with relief only available for actual expenditure in the year.
On a brighter note Rent a room relief will increase to £7,500 from April 2016, the first increase to this relief since 1997/98! Whilst of limited application it could be useful for students sharing a house where one is the owner occupier.