Mortgage Interest Tax Relief

The mortgage interest tax relief is a tax credit that landlords of buy-to-let properties are eligible to claim in order to reduce their tax bill. It used to be the case that landlords could simply deduct their mortgage interest from their income, claiming it as an expense, thus reducing their Income Tax obligations.

Since April 2017, this is no longer the case. Landlords can no longer claim the whole of their interest as an expense, so they are now liable to pay more tax than before – if they are a higher rate taxpayer.

How does the mortgage interest tax relief work?

Landlords are taxed on their total annual income and can only claim tax relief at the basic rate of 20% on whichever figure is lower:

  • Finance costs (so any mortgage interest payments, loan repayments, overdrafts, etc)
  • Profit from their rental income (minus allowable expenses)
  • Total income (above the personal allowance)

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