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From 1 April 2017, new legislation will come into force regarding the tax relief that is available on mortgage interest regarding rental property.
Currently, if you own a rental property and accrue mortgage interest, this is deducted from rents received each tax year, along with any other rental expenses, leaving you with a rental profit or loss for the year, which is then declared on your Tax Return.
From 1 April 2017, your rental profit/loss will be calculated prior to any mortgage interest deduction. This figure is then declared on your Tax Return, and then the mortgage interest for the year attracts tax relief at the basic rate of tax.
This change will see your gross income increase, which will increase the likelihood of you paying higher rate tax and/or impact on the amount of dividends that can be declared each tax year before your income reaches the higher rate tax threshold. It could also impact on your income for child benefit purposes, if your income exceeds £50,000 as a result of the changes.
These rules do not affect commercial property nor properties that qualify as furnished holiday lets.
Unsure if this affects you or simply don’t understand what’s happening? Give us a call or come in and see us… We’re here to help you!