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Finance cost relief

Published 17th February 2020

Still puzzled by the S24 restriction or finance cost relief? See the easy to read full explanation.

From 6th April 2020 the tax relief that landlords of residential properties get for finance costs is being restricted to the basic rate of Income Tax. The finance cost relief is given as a reduction in tax due.

How the tax reduction is worked out

The reduction is the basic rate value (currently 20%) of the lower of:

  • Finance costs - costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward.
  • Property business profits - the profits of the property business in the tax year (after using any brought forward losses).
  • Adjusted total income - the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance.

The tax reduction can’t be used to create a tax refund.

If the basic rate tax reduction is calculated using the ‘property business profits’ or‘adjusted total income’ then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years.