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Mortgage interest restriction

The mortgage interest restriction is a restriction on the tax relief that landlords can claim for their finance costs.

In short, until the 2016/2017 tax year, you could claim all of the mortgage interest against your rental income tax. If you had an interest-only buy-to-let mortgage, this was obviously a great benefit.

Since then it has been gradually replaced with a 20% tax credit, and starting on April 6 2020, you’ll only be able to use this tax credit. In other words, claiming mortgage interest is restricted to the basic rate of tax (20%).

The mortgage interest restriction only affects you if you’re a higher rate taxpayer because you used to be able to get back 40% or more of your mortgage interest. If you have many properties, it might be worthwhile to run your rental business through a limited company, since you can still claim the interest in the old way.

If you’re a basic rate taxpayer, nothing has changed – you were already getting back 20% of the mortgage interest.

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