Finance cost relief restrictions for landlords

For many of our landlord clients, the restriction for finance cost relief will be taking effect this year.  It affects Individuals that receive rental income on residential property and incur finance costs (such as mortgage interest), excluding properties which meet the furnished holiday lettings conditions.


This measure will restrict relief for finance costs to the basic rate of Income Tax gradually from 6 April 2017.  For those individuals who have not seen this in the news, this may come as a nasty surprise when the tax calculation is prepared after 5 April 2018.


Landlords will be able to obtain relief as follows:

  • For 2017/18 the deduction against property income is restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • For 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • For 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • For 2020/21, all financing costs incurred will be given as a basic rate tax reduction


Some individuals with high equity may find that selling a property and using the proceeds to pay down other loans as a way of managing the restriction, however this can produce other unintended tax consequences such as capital gains tax.  For those with little equity in their properties, cash flow projections will be required to show the full effect of these restrictions.  There may be alternative strategies available such as incorporating the rental business; however these need to be considered with a broader tax view so that decisions can be made with clear understanding of how the future tax position may be affected.


Choosing the correct tax relief can be a daunting prospect for an individual or business without a qualified advisor. We would always recommend the appropriate and responsible relief according to the specific circumstances.


If you would like to discuss finance cost relief restrictions in more detail or you would like to speak with a member of our  team, please contact Alex Gardner or call on 01253 404404 to be put in contact with a member of our Tax team.