Mortgage Interest Relief

CHANGES TO MORTGAGE INTEREST RELIEF FOR LANDLORDS

 

Landlords were able to deduct mortgage interest from the rental income they receive for tax purposes.

However from 6th April 2020 this deduction will be restricted to the basic rate of income tax which is currently 20%. The tax relief will be given as a deduction from tax liability rather than as a deduction from rental income profits.

The changes are being phased in from 6th April 2017 with 2017/18 being the first year of the change.

Before 2017/18 landlords could deduct the whole mortgage interest from rental income profits but in 2017/18 this is restricted to 75% of the mortgage interest cost.

In 2018/19 this reduces to 50%, then in 2019/20 25% and in 2020/21 no deduction will be allowed.

 

The key changes are as follows:

  1. The changes are being phased in over 4 years starting from 2017/18.
  2. Mortgage interest tax relief will be restricted to basic rate tax, currently 20% and given as a deduction in tax liability instead of being given as a deduction from rental income profits.
  3. The changes could mean that people who were previously not higher rate taxpayers may find themselves pushed into the higher rate tax band.
  4. There is no impact for any taxpayer who is and will remain a basic rate tax payer.
  5. All other costs associated with rental income remain allowable i.e. insurance, management fees, repairs etc.

 

Impact

  1. Higher rate taxpayers will find themselves paying more tax as the mortgage interest relief is only allowed at basic rate. This pushes more income into the higher rate tax band.
  2. It may put off landlords buying more premises with a large mortgage or under an interest only mortgage.