What Will the Reduction in Mortgage Interest Relief Mean for my Tax Bill?
During last night's webinar a few landlords asked to explain exactly what the proposed reduction in income tax relief for mortgage interest would mean for them.
So today we asked Jigna Shah, Assistant Tax Manager at Charterhouse Accountants, to do the maths on 4 example properties and also to show the impact if they represented a landlord's whole portfolio.
For the purpose of demonstration, the calculations assume the new rules are brought in for the tax year 2016/17. However, the Chancellor has indicated the measure will be introduced over several years.
Jigna clarifies the impact of the change:
"You will see that the mortgage relief in the current year 15/16 will differ based on whether the client is a basic/higher or additional rate tax payer. From the second tax year on (2016/2017 onwards), even though the tax payer is a basic/higher or additional rate tax payer they will only get tax relief at 20%.
"Please note, these examples only reflect the impact of the new mortgage interest relief rules and not how net rental profit would be calculated.
"Personal allowance would be deducted but that would be based on each person’s tax position and also net rental profit would be calculated as per usual but by excluding the mortgage interest payments as mortgage interest paid will be taxed separately at the basic rate of tax of 20%."