Part 4: Income tax, corporation tax and capital gains tax Section 24: Relief for finance costs related to residential property businesses Details of the section
Subsection (1) amends the Income Tax (Trading and Other Income) Act (ITTOIA) 2005.
	Subsection (2) introduces new sections 272A and 272B of ITTOIA 2005.
	New sections 272A and 272B restrict the deduction for finance costs related to the residential part of a property business when calculating the profits of that business.
	New sections 272A(1) to (4) restrict the deduction for finance costs when calculating the profits of each residential property business to:
	75% for 2017-18,
	50% for 2018-19,
	25% for 2019-20, and,
	0% for 2020-21 and following years.
	New section 272A(5)provides that the restrictions in subsections (1) to (4) do not apply for calculating the profits of a company on which it is charged to income tax, no matter whether those profits arise from a property business carried on by it directly or in partnership (unless those profits accrue to it in a fiduciary or representative capacity).
	New section 272B(1) provides that subsections (2) to (5) apply for the purposes of new section 272A.
	New section 272B(2) defines "dwelling-related loan" as an amount borrowed for the purposes of generating income from residential dwellings. Where an amount is borrowed only partly for the purpose of generating income from residential dwellings then an apportionment on a just and reasonable basis is provided for.
	New section 272B(3) provides that the construction of a dwelling-house or adaptation of land (including buildings) to create a dwelling-house is for the purpose of generating income from residential dwellings.
	New section 272B(4) excepts an amount borrowed for the purposes of generating income from the commercial letting of furnished holiday accommodation from being a dwelling-related loan. Where an amount is borrowed only partly for the purpose of generating income from the commercial letting of furnished holiday accommodation then an apportionment on a just and reasonable basis is provided for.
	New section 272B(5) defines "costs" in relation to a dwelling-related loan as interest, an amount which is economically equivalent to interest or incidental costs of obtaining finance.
	New section 272B(6) applies sections 58(2) to (4) of ITTOIA 2005 for the meaning of "incidental costs of obtaining finance".
	New section 272B(7) provides that references to a dwelling-house in this section include the garden or grounds occupied or enjoyed with the house.
	Subsections (3) and (4) provide that any rules in Part 3 of ITTOIA 2005 do not have priority over the prohibitive rule in new section 272A.
	Subsection (5) introduces new sections 274A and 274B of ITTOIA 2005.
	New section 274A gives a reduction from the calculation of income tax liability for individuals, including individual partners of firms, by reference to the amount of finance costs that have been disallowed under new section 272A.
	New section 274A(1) provides that subsections (2) to (5) apply where an amount ("A") of costs of a dwelling-related loan would have been deductible in calculating the profits of a property business but for new section 272A and an individual is liable to income tax on a percentage of the profits of the property business. An individual would generally be liable to income tax on less than 100 per cent of the profits of the property business where he is carrying on the business in partnership.
	New section 274A(2) provides that the individual is entitled to relief in respect of A by reference to the percentage of the profits of the property business on which the individual is liable to income tax.
	New section 274A(3) calculates the amount of relief for each property business as BR x L, where BR is the basic rate of income tax and L is the lower of:
	The amount of costs of a dwelling-related loan that would have been deductible in calculating the profits of a property business for the tax year but for new section 272A, plus any amount brought forward under subsection (5), and,
	The profits of the property business for the year, after deduction of any losses brought forward under section 118 of Income Tax Act (ITA) 2007 ("the adjusted profits"), or the percentage of the adjusted profits of the property business on which the individual is liable to income tax if that is lower.
	New section 274A(4) restricts the total relief under subsection (3) across all the individual's property businesses (the "gross finance-costs relief") to the individual's adjusted total income of the year, where that is lower. It does this by setting out the calculation that apportions the adjusted total income between the different property businesses, by reference to the proportion of the total relief under subsection (3) that is contributed by each business.
	New section 274A(5) allows for an amount of relief to be carried forward where the relief given under new section 274A is restricted by the property business profits at subsection (3)(b) or by the individual's adjusted total income at subsection (4). The individual can carry forward the difference between the relief given under new section 274A divided by the basic rate of income tax and the costs that were disallowed under section 272A, including brought forward amounts.
	New section 274A(6) defines an individual's adjusted total income as their total income, excluding savings income, dividend income and allowances that the individual is entitled to for the tax year under Chapter 2 of Part 3 of the ITA 2007, for example, the personal allowance.
	New section 274A(6) also defines an individual's gross finance-costs relief as the total relief that the individual is entitled to under new section 274A before any adjustment for adjusted total income under subsection (4) of new section 274A.
	New section 274B gives a reduction from the calculation of income tax liability for trustees.
	New sections 274B(1) and (2) provide that trustees are eligible for the basic rate tax reduction where:
	there has been a restriction on the deduction for finance costs when calculating property profits, and,
	a share of those profits is accumulated or discretionary income in relation to the trustees on which they are liable to income tax.
	New section 274B(3) calculates the amount of relief as BR x L, where BR is the basic rate of income tax and L is the lower of:
	The amount of costs of a dwelling-related loan that would have been deductible in calculating the trustees' relevant share of the profits of a property business for the tax year but for new section 272A, plus any amount brought forward under subsection (4), and,
	The profits of the property business for the year, after deduction of any losses brought forward under section 118 of Income Tax Act (ITA) 2007 ("the adjusted profits"), or the share of those adjusted profits that is accumulated or discretionary income on which the trustees are liable to income tax.
	New section 274B(4) allows for an amount of relief to be carried forward where the relief given under new section 274B is restricted by the property business profits at subsection (3)(b). The trustees can carry forward the difference between the relief given under new section 274B divided by the basic rate of income tax and the costs that were disallowed under section 272A, including brought forward amounts.
	New section 274B(5) clarifies that for the purpose of this section "accumulated or discretionary income" takes the same meaning as in section 480 of ITA 2007.
	Subsection (6) makes consequential amendments to section 322 of ITTOIA 2005.
	Subsection (7) introduces new sections 399A and 399B ITA 2007.
	New section 399A restricts the deduction an individual can obtain for interest on a loan that they have used to invest in a partnership where that investment has been used by the partnership for the purposes of its residential property business.
	New section 399A(1) applies to interest on a loan within section 398 of ITA 2007 to invest in a partnership if that partnership generates income from residential dwellings.
	New section 399A(2) provides that relief under section 383(1) of ITA 2007 will be restricted by subsections (3) to (6) for so much of the interest as is referable on a just and reasonable basis to the part of the business that generates income from residential dwellings.
	New sections 399A(3) to (6) restrict the interest deduction under section 383(1) to:
	75% for 2017-18,
	50% for 2018-19,
	25% for 2019-20, and,
	0% for 2020-21 and following years.
	New section 399A(7) applies section 399(4) of ITA 2007 before the restrictions at subsections (3), (4) or (5).
	New section 399A(8) provides that the construction of a dwelling-house or adaptation of land (including buildings) to create a dwelling-house is for the purpose of generating income from residential dwellings.
	New section 399A(9) excepts an amount invested for the purposes of or in connection with a business, or a part of a business, that generates income from the commercial letting of furnished holiday accommodation.
	New section 399A(10) provides that references to a dwelling-house in new section 399A include the garden or grounds occupied or enjoyed with the house.
	New subsection (11) clarifies that "property business" in this section means a UK property business or an overseas property business. Those terms are defined in ITA 2007 by reference to Part 3 of ITTOIA 2005.
	New section 399B gives a reduction from the calculation of income tax liability for individuals by reference to the amount of interest that has been disallowed under new section 399A.
	New section 399B(1) provides that subsections (2) to (5) apply where an amount ("the relievable amount")would have been deductible under section 383(1) of ITA 2007 but for new section 399A.
	New section 399B(2) provides that the individual is entitled to relief in respect of the relievable amount.
	New section 399B(3) calculates the amount of relief under section 383(1) as BR x L, where BR is the basic rate of income tax and L is the relievable amount.
	Subsection (8) inserts references to new sections 274A of ITTOIA 2005 and 399B of ITA 2007 to the list at section 26(1)(a) of ITA 2007 of tax reductions an individual can deduct at Step 6 of the income tax calculation in section 23 of ITA 2007.
	Subsection (9) inserts references to new section 274B of ITTOIA 2005 to the list at section 26(2) of ITA 2007 of tax reductions persons other than individuals can deduct at Step 6 of the income tax calculation in section 23 of ITA 2007.