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Mortgage interest tax relief changes explained

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Mortgage interest tax relief changes explained

The ongoing changes currently being rolled out to mortgage interest tax relief have been strongly criticised by landlords and property bodies – but what are they, and how will they affect property investment?

The phasing out of ‘old-style’ mortgage tax relief

Before 2017, landlords could offset all of their mortgage interest charges against their rental income.

This made for some very helpful savings as, for example, a buy-to-let investor with an annual rental income of £20,000 and annual mortgage interest of £15,000 would only need to pay tax on the remaining £5,000 at their usual rate.

However, the ongoing changes – which were first introduced in April 2017 – have now made buy-to-let investment quite different.

The phasing in of ‘new-style’ mortgage tax relief

The new rules initially reduced the amount of mortgage interest that can be deducted from rental income down to 75 per cent in 2017/18.

At the same time, a new 20 per cent tax credit was introduced, which could be applied to the 25 per cent of annual mortgage interest which could no longer be offset against rental income.

Ongoing changes over the years

Over the coming years, the rules will continue to change gradually.

From 2018/19, landlords will only be able to offset 50 per cent of mortgage interest against rental income, with 50 per cent qualifying for the 20 per cent tax credit.

From 2019/20, they will only be able to offset 25 per cent of mortgage interest against rental income, with 75 per cent qualifying for the new 20 per cent tax credit.

From 2020/21, buy-to-let investors will no longer be able to offset any percentage of mortgage interest against their rental income. However, all mortgage interest will qualify for the 20 per cent tax credit.

The importance of specialist advice

The new rules are likely to weigh heavily on landlords in the years ahead – and savvy investors may want to re-assess their existing position to find out how they can make their property investments more tax-efficient.

If you need specialist advice with regards to property tax, please contact our expert team today.


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