14 September 2015 | Taxation
Over the four years starting on 6 April 2017 tax relief at higher rates will be progressively phased out for interest on loans which were used to purchase buy-to-let residential properties. From 6 April 2021 the maximum rate of tax relief available will be the basic rate.
Starting in 2017/18 tax relief on interest paid on loans used to buy or improve let residential properties will be phased out. Where you own another trading business, which is not the trade of residential letting, you should be able to avoid losing your tax relief on the buy to let related loan by borrowing via the other business. The following example illustrates how this can work.
David owns and runs a manufacturing business as a sole trader. The latest company balance sheet shows his equity in the business is £400,000, and in effect the business owes him that amount. He also owns a residential buy to let property which he purchased with a loan, and the balance remaining on the loan is £150,000.
David’s manufacturing business can borrow £150,000 to repay David the money it owes him. The interest the business pays on the loan is a wholly tax-deductible expense. David can use the £150,000 repaid to him by his business to pay off the buy to let loan, and the result is that David has exchanged the restricted buy to let loan for a fully tax-deductible business loan.
For more information on this, please contact Angus to discuss the options.