Press release: Restriction of loan interest for landlords ends parity between residential and commercial lets

Natalie Miller, ATT President, said:

“This change breaches the previous principle of consistency between the treatment of residential and commercial landlords for tax purposes.

“It is not long ago that HMRC updated its procedural manuals to clarify that the running of a rental business was no different to the running of a normal trading business. HMRC accordingly accepted that the mortgaging of an existing rental property was akin to withdrawing capital from a business and that there should not therefore be any restriction on how that withdrawn capital was used, provided that the amount withdrawn from the rental business did not exceed the amount of free capital originally put into the business – that being the market value of the property when it was first let out. Just as with a trading business, the cost of raising finance for a letting business has always been an allowable deduction recognised as a cost of doing business.

“In yesterday’s Budget the Chancellor was keen to compare the treatment of mortgage interest on rental properties with the treatment of mortgage interest on residential homes as a justification that this measure is making the tax system fairer. That does not, however, explain why there should be a difference in tax treatment between the letting of residential and non-residential property.

“This difference will require additional and potentially quite complex definitions. We will certainly require some clarity as to whether this measure is intended to affect mixed-use properties, such as a property comprised of a shop with living accommodation above. Will the mortgage interest apportioned to the residential part be subject to this new cap? Is the proposal intended to suggest that the letting of commercial property is a property business but that the letting of residential property is not?

“If the Government are not consistent in their approach to the treatment of landlords then how are the general public supposed to know where they stand.”

However, the ATT has welcomed the news that pre-Budget reports that mortgage interest relief would be totally scrapped for landlords were unfounded. Natalie Miller said:



“A total removal of mortgage interest relief for landlords would have been disastrous for many and could have forced some individuals to sell properties which they could no longer afford to finance. Therefore, we are pleased with this more measured approach that relief for mortgage interest on let residential property will only be allowed at the basic rate and this will be phased in gradually from 6 April 2017.”

Technical Team