Income Tax (Trading and Other Income) Act 2005 section 272A

Restricting deductions for finance costs related to residential property

Section 272A phases out the ability of individual landlords to deduct finance costs related to residential property loans when calculating their property business profits, replacing this with a basic rate tax reduction.

• Finance costs on dwelling-related loans were gradually restricted from 2017-18: deductible amounts reduced from 75% (2017-18) to 50% (2018-19) to 25% (2019-20), reaching zero from 2020-21 onwards.
• From 2020-21 and all subsequent tax years, no deduction whatsoever is allowed for dwelling-related loan costs when calculating property business profits for income tax purposes.
• Companies charged to income tax on property business profits that accrue to them in their own right (i.e. not in a fiduciary or representative capacity) are excluded from these restrictions.
• The definition of "costs of a dwelling-related loan" is set out in section 272B, and section 307D addresses how these rules interact with the cash basis of accounting for property businesses.