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.

Non-resident companies

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.