Claiming Loan Interest Relief

These are summarised below:

• Buy to let properties

  As I am sure you are aware, since April 2017, the system of calculating tax liabilities on rental income has changed, and by April 2020, a buy-to-let landlord may not be able to deduct their costs of finance from rental income to reduce their tax bill.

  Instead, landlords will be given a completely new tax credit, which is less generous than the current regime, set at a maximum of 20% of the finance costs, but the reality could be a lot less than this.

• Furnished holidays letting/serviced accommodation

  Compare the position above to that of serviced accommodation that satisfies the furnished holiday letting rules. In this case, the tax rules are a lot more favourable and loan interest relief continues to be allowed in full.

  Where properties move between the two different regimes, the loan interest relief will be required to be apportioned on a just and reasonable basis.

• Borrowing to acquire shares or lend to a close company

  With many moving to acquire buy-to-let properties through a limited company, they may decide to leverage their existing portfolio and lend that money to the new limited company.

  If this is the case, in simple terms, as long as the company is 'close', i.e. it is controlled by five or fewer shareholders and the investor owns more than 5% of the shares in the company, loan interest relief will be allowable in full against the investors' general income. This is known as 'qualifying loan interest'.