New measure will restrict relief for finance costs on residential properties to the basic rate of income tax. 

This measure will restrict relief for finance costs on residential properties to the basic rate of income tax and will be introduced over four years from 6 April 2017. 

The measure will not affect companies renting out property. The measure will not affect individuals renting out commercial property or furnished holiday letting. 

The measure will affect residential property in the UK and elsewhere. The measure will affect mortgage interest, interest on loans to buy furnishings and fees incurred taking out or repaying mortgages or loans. 

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. 

Landlords will be able to obtain relief as follows:

                                 Finance cost allowed in full            Finance cost restricted to basic rate

Year to 5 April 2016                   100%                                                        0%

Year to 5 April 2017                   100%                                                        0%

Year to 5 April 2018                   75%                                                          25%

Year to 5 April 2019                   50%                                                          50%

Year to 5 April 2020                   25%                                                          75%

Year to 5 April 2021                   0%                                                            100%

This worked example demonstrates the impact these changes could have. 

Further details of these proposals can be found here