How did the mortgage interest tax relief change?

Before 2017: The interest for your mortgage was 100% deductible. Since most landlords have interest-only mortgages (where you pay only the interest each month and the price of the property at the end of the period), you could basically claim all mortgage repayments.

After 2017: changes are rolled gradually (see below) and landlords receive a new tax credit – somewhat less generous than the existing mortgage interest tax relief.

The buy-to-let mortgage interest tax relief from 2018-19 to 2020-21

It has fallen gradually each year:

The 20% tax credit applies to the lowest of:

• Mortgage interest
• Property profits
• Total income above the personal allowance

What happens now?

It all depends on two things:

• Is your total income (except allowable expenses, and mortgage interest will not be one of them) above the higher tax band (£50,270 in 2022/2023)?
• Will you make significant investments in your buy-to-let property, like renovations, repairs, or furnishings?

3 things can happen:

• You might pay more tax: if removing the mortgage interest tax relief tips you into the higher rate
• No significant change: if you don’t go into the higher rate
• You might benefit from carrying forward unused finance costs – see a detailed calculation of the changes in the mortgage interest tax relief here

You might also want to read our guide to paying tax on rental income here.