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Before 2017: The interest for your mortgage was 100% deductible. Since most individual landlords have interest-only mortgages, you could basically claim all mortgage repayments. That’s because you pay only the interest each month and the price of the property at the end of the period.
After 2017: The tax relief that landlords of residential properties get for finance costs is being restricted. The reduction is based on the basic rate of income which is currently 20%. HMRC outline the situation here, including some case studies on what this could mean for you as a landlord with one or many rental properties.
You can still deduct some of your finance costs but these deductions have been reduced over time, as you can see from the table below, and replaced with a basic rate relief tax reduction.
|Tax Year||Mortgage interest deductible 100%||Deductible at a 20% tax credit|
The reduction is the basic rate value of 20% of the lowest of:
There are two questions to consider.
Here are the 3 outcomes possible, based on what your answers to the above questions are:
Read our guide to paying tax on rental income here for more information.
We can help. We offer one-off, personal tax advice from an accredited accountant, especially for landlords. Whether you’re looking to be more tax-efficient, getting your head around the changes in rental properties or anything else, we’ve got your back. Just £119 per consultation. Learn more here.
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