Changes to interest relief on mortgage payments for landlords

Often property rental is looked upon as a long-term investment, but like all investments there is a degree of risk. The property value may go up or it may go down. Being a landlord, there are financial requirements that you must adhere to. There are a lot of changes affecting landlords in the next few years, mainly the relief on mortgage interest.

You can only claim for the interest proportion of your mortgage repayments, any capital repayments are not treated as an expense when compiling your accounts. Often buy-to-let properties have an interest-only mortgage, which means that all of the payments are claimable providing you are not a “Higher Tax payer”. 

The good news is that until 2017/18 there is no change in the buy to let mortgage interest relief 

The proposal is to allow income tax relief on buy to let finance costs at the basic rate of tax only. 

Landlords are currently able to offset all finance interest against their rental profits, before calculating their rental profit. By the year 2021 it will still be possible to obtain a deduction for finance interest, but the amount will be capped at 20% of interest paid.

The new rental property finance costs tax relief changes will come into effect in full in the tax year 2021, with a phasing in from tax year 2017/2018 as follows: -

  1. -  25% 
  2. -  50% 
  3. -  75%
  4. -   100%

Because the mortgage interest relief restrictions don’t start to apply until tax year 2018, and even then are phasing in over 4 tax years, we have time to consider the effects it will have on your tax liability for future years and make plans to deal with the new regime.