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July Budget Update - Mortgage Interest Relief Restrictions Tax Planning Options

The July 2015 Budget changes to mortgage interest relief will, for some landlords, create significantly higher tax bills. This article explains what tax-planning options are available, and the benefits and issues of each.

Firstly, don't panic…
Landlords are currently able to offset all their finance interest against their rental profits, before calculating their rental profit and therefore tax bill. This will remain the case for the 2016 and 2017 tax years. Many landlords have not yet filed their 2015 tax returns, and so will be filing three years of tax returns (year ended 5 April 2015, 5 April 2016, 5 April 2017) before the impact of the mortgage interest changes are seen.  

This leaves almost two full tax years to plan for the mortgage interest relief 'new world', and even in the first tax year (2018) affected, the change is being phased in slowly i.e. this isn't a sudden 'Big Bang' immediate change.  
So the message is…now is the time to plan and put in place tax-planning options that are appropriate for your scenario - but knee-jerk reactions aren't required.

Options to reduce the impact of forthcoming changes to mortgage interest relief
Firstly, assess the extent to which you are affected by the changes - or log onto our website and use our Mortgage Interest Relief Calculator to run some calculations using your portfolio and income details. For those affected, either:
1. The changes push you - a Basic Rate taxpayer - into the Higher Rate band = so a 'medium' tax bill results (this is the category with the most people affected)
Or,
2. You are a Higher Rate taxpayer = and so 'high' tax bill results from the changes.

Tax-planning options:

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