Mortgage interest on a buy to let

I have a mortgage on a buy to let property, how much of the mortgage interest can I reclaim? 

1st July 2017

In the past, it was fairly simple for a landlord to offset the interest for a mortgage on a buy to let property against the relevant rental income.

However, from April 2017, there was a significant change to the rules on tax relief for interest and other finance costs for residential landlords. The changes are being phased in over a 4-year period and by 2020/21 relief will be limited to a basic rate relief tax deduction.

During the transitional period, you’ll still be able to deduct some of your finance costs when you work out your taxable property profits.

Tax year

Percentage of finance costs deductible from rental income

Percentage of basic rate tax reduction

2017 to 2018

75%

25%

2018 to 2019

50%

50%

2019 to 2020

25%

75%

2020 to 2021

0%

100%

Higher and additional rate tax payers will be worse off as a result of the changes. Historically, they will have been receiving tax relief for their mortgage interest at the rate of tax they pay (i.e. 40 or 45%). But their relief will now be restricted to the basic rate of 20%.

An accountant should be able to forecast how the change will impact on your tax bill. Your local TaxAssist Accountant would be happy to review your affairs. 

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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