As the buy-to-let market continues to grow you may have decided to get in on the action, but needed to borrow to buy a property. The trouble is the new rules introduced by HMRC will restrict tax relief on loan interest and finance costs for higher and additional rate taxpayers from April 2017.
Over the course of three years higher and additional rate tax relief on mortgages for residential rental properties will be phased out so that only basic rate tax relief will be available from 5 April 2020. For example, a higher rate taxpayer who suffers £20,000 interest on a buy-to-let mortgage will received tax relief of £8,000 in 2015/16. However, this will be halved to £4,000 in 2020/21.
Owning a property through a company may be an option as this means that interest relief will not be lost. However, any profits made will belong to the company and there may be an income tax liability on extracting these. There are many ways to get this out of the company tax efficiently, but this will be dependent on your personal circumstances. Our advice would be to draw up a projection of income and expenses for the next five years and compare the tax outcome. If you need help with this then get in touch.