Historically, landlords have enjoyed generous income and capital gains tax reliefs which helped make residential property an attractive investment for those looking to add to their monthly incomes or provide for retirement. But over the years the Treasury has eroded these reliefs, both income and capital.
You might remember mortgage interest relief at source, which encouraged home ownership by offering tax relief for interest payments on a mortgage. This was abolished in 2000 but those who bought residential lets could deduct interest payments from their property rental profits in full and reduce their tax liability on their residential let.
However, in 2015, the Government announced plans to cut back this tax relief by restricting the amount of income tax relief landlords could get on residential property finance costs.
The changes kicked in on 6 April 2017 and were phased in over four years, in order to give landlords the time to adjust gradually, with the full changes taking effect in 2020/21.
For many over the past three years, this resulted in an increasing tax liability as their ability to deduct mortgage interest payments from their rental profits has been reduced from 100% to nil.
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