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Mortgage interest tax relief

The mortgage interest tax relief is how much landlords can claim from their buy-to-let mortgage interest against their rental income tax bill.

How claiming mortgage interest tax relief is changing:

  • until 2016/17 claiming the mortgage interest tax relief was simple: you claimed it as you would any other expense
  • however, since 2020/21 landlords can only claim a 20% tax credit instead
  • between 2016/17 and 2020/21, this change is gradual – every year, the proportion that you can claim according to the “old rules” dropped by 25%.

How much mortgage interest tax relief you can get starting April 2020:

  • if you’re a basic rate taxpayer, you have nothing to worry. There’s no change for you – you were already getting 20% back from the mortgage interest, which is the same as what you’ll be getting with the new tax credit
  • if you’re a higher rate taxpayer, you’ll be able to claim half as much (you get back 20% as a tax credit instead of 40% as an expense).

Example of calculating finance costs relief using the new rules:

  • let’s say you have a £300,000 interest-only buy-to-let mortgage with 5% annual interest
  • that means your interest alone is about £15,000 a year
  • by claiming it “the old way” you would get 40%, or £6,000 back
  • now, with the new tax credit, you only get 20% of it back, or £3,000
  • your tax bill is now £3,000 higher.

You can use this rental income tax calculator to see how much mortgage interest tax relief you can get.

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