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.