A number of changes are being introduced the way the finance costs will be deductible from tax year 2017-18. There are lot of complications involved with the calculation of tax payable on property rental income.
Following are the main changes.
Finance costs (i.e. mortgage arrangement fees, mortgage interest) will not be available as a deductible expense against a property income of an individual.
Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating their rental profit.
It means that, higher rate tax payers will be left with higher tax on property income as compared to tax calculated today.
The restriction of allowance of finance costs is being phased in between tax years 2017-18 and 2020-21.
So, holding a property through a company might look as more tax efficient alternative for higher rate tax payers from tax year 2017-18 on wards.