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Restrictions on Mortgage Interest for Landlords

Since April 2017 landlords have no longer be able to obtain 100% relief on their finance costs at the higher rate of income tax. Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

The new measure means that property owners with higher incomes no longer receive the most generous tax treatment. To give landlords time to adjust, the government has introduced this change gradually from April 2017 over 4 years as follows:-

  • In 2017 to 2018, the deduction from property income (as was previously allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • In 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • In 2019 to 2020, 25% finance costs deduction and 75% given as basic rate tax reduction
  • From 2020 to 2021, all financing costs incurred by a landlord will be given as a basic rate tax reduction

These reforms mean that the way taxable income is calculated will change and this may have other implications for some. For example, if you or your partner receive Child Benefit and your income is over £50,000 you will lose some of your Child Benefit.

Written by Callum Somers MAAT ACCA


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