1. Tax Task TT
Tax solutions for individuals and businesses
keith.emmerson@taxtask.co.uk www.taxtask.co.uk
07852 245 020
5 Oakwood Drive Darley Dale Matlock Derbyshire DE4 2BT
Tax Task UK Ltd - trading as Tax Task. Director - Keith Emmerson BSc CTA Chartered Tax Adviser
MORTGAGE RELIEF CUT BACK
COMPLEX CHANGES AND SIGNIFICANT TAX DISADVANTAGES
Announcements in the 2015 summer budget proposed significant cutting back to the tax relief available on
mortgage interest for personally held property. Tax relief for properties held by companies is not affected.
Because restrictions start in April 2017, it is vital to understand how these will affect your tax position so you
can carry out sensible planning and preparation.
Currently, landlords claim tax relief on mortgage interest at the top level of income tax they pay. The principle
of the new changes is eventually to offer just a 20% tax credit instead, which means that the future tax charge
will be effectively based on the rental income, and not the true profit.
Consider the following example:
EXAMPLE FOR A 40% TAX PAYER – IT IS POSSIBLE
TO PAY MORE TAX THAN SHOWN HERE
2016/17
CURRENT SITUATION
2020/21
AFTER RELIEF IS CUT BACK
Gross rental income £15,000 £15,000
Less allowable expenses and repairs £1,000 £1,000
Taxable rental income £14,000 £14,000
Less CURRENT mortgage interest relievable £10,000 £0
Net rental profit £4,000 £14,000
40% income tax on this profit £1,600 £5,600
Less NEW 20% tax credit n/a £2,000
Tax Payable £1,600 £3,600
Tax increase of - £2,000
Effective tax rate on current profit of £4,000 40% 90%
In October 2016 the Administrative Court did not allow the request for a full judicial review by barrister Cherie
Blair; this means that the legislation changes will go ahead.
The proposed changes are complex, being phased in over four years from April 2017 and are likely to be
amended. There is no single strategy that will work for you now and in the future, however there are some
changes you should look at that are likely to be effective whatever happens.

2. Tax Task TT
Tax solutions for individuals and businesses
keith.emmerson@taxtask.co.uk www.taxtask.co.uk
07852 245 020
5 Oakwood Drive Darley Dale Matlock Derbyshire DE4 2BT
Tax Task UK Ltd - trading as Tax Task. Director - Keith Emmerson BSc CTA Chartered Tax Adviser
TAX PLANNING THAT SHOULD HELP
 For married couples, transferring a share of your let properties to your spouse may reduce the
negative effect of the changes. Whilst this is relatively simple to put in place, there are of course many
other consequences that should be taken into account and professional advice should always be
sought.
 Transferring part of your property portfolio to a new limited company may give you control over the
timing of when you receive income from your investment company. If this is an appropriate solution
then you may be able to keep full tax relief on your mortgage interest, provided you remain a basic
rate taxpayer. Transfers to a company are usually considered as disposals at full market value
therefore could attract capital gains tax and stamp duty land tax charges. Careful consideration needs
to be taken and additional planning may be available to limit the effect of these changes.
 If you are running a sizeable property portfolio you may wish to consider incorporating the whole of
this and claiming Incorporation Relief. Where the conditions are met, the transfer to the company can
be made tax efficiently, so this may well be beneficial way to combat the proposed changes.
I’ll be looking in more detail at the effects of transferring properties to your spouse and to a company in later
articles, to highlight the savings that may be available.
As always, you should check with your tax adviser before taking any action relating to anything in the above
article, which is for information only.
Keith Emmerson is a Chartered Tax Adviser with considerable property tax experience and would be pleased to
discuss any accounting or tax issue relating to your let property. He can be contracted as follows:
keith.emmerson@taxtask.co.uk
Mobile: 07852 245020
www.taxtask.co.uk