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Restricted Finance Costs from Property Income

Article ID: 2872
Last updated: 04 Oct, 2019

Restricted Finance Costs from Property Income

From 6 April 2017, new rules were introduced to restrict deductions from property income for finance costs for residential properties for individuals . The measure was introduced is to restrict relief for finance costs to the basic rate of income tax and the changes will be introduced gradually.

What are the transitional rules?

The new rules are being phased in from 2017/18 through to 2019/20 as follows:

Year % of costs deducted from profits % of costs available as a basic rate deduction
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 - 100%

Further restrictions

The basic rate deduction is up to 20% of the disallowed finance costs.  The deduction is restricted in some circumstances, such as the following:

  • When property profits are less than the amount of disallowed finance costs, the deduction is limited to 20% of the property profits.  The reduction does not reduce tax payable on other sources of income.
  • When total income (excluding any savings or dividend income is low, the deduction is restricted to 20% of income in excess of the personal allowance and blind person's allowance in the tax year.

When there is a restriction due to profit or total income ,any finance costs which have not been used to calculate the basic rate deduction in one year can be carried forward and added to the finance costs of the following year. 

Please note that this change does not affect Qualifying Furnished Holiday Lets 

Article ID: 2872
Last updated: 04 Oct, 2019
Revision: 2
Views: 440
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folder Tax Return Production -> SA100 Individual Return