A restriction on income tax relief for finance costs against rental income on residential property has been phased in over the last four years. This began in 2017/18; for 2020/21, finance costs will no longer be allowed as a deductible expense, but rather as a reduction in tax liability on rental income at 20%. The rules are complicated and can produce unpredictable results.
As announced in past Budgets, and following consultation, foreign resident companies with income from UK rental properties become liable for corporation tax rather than income tax from 6 April 2020. The Budget included technical changes to allow such companies relief for financing costs that might otherwise fall in a gap between the income tax and corporation tax rules.
Annual Tax on Enveloped Dwellings
The annual tax charges on residential properties worth more than £500,000 that are owned through companies and other ‘envelope’ arrangements will go up for 2020/21 by a little over 1.6% on average. The charge on a property worth between £500,000 and £1 million rises from £3,650 to £3,700, and the maximum charge on a property worth more than £20 million rises from £232,350 to £236,250.