Landlords – Tax relief on mortgage interest

Previously, landlords were able to include mortgage interest as an expense in arriving at their taxable rental profits.

These rules changed from 6 April 2017, and you are no longer able to include mortgage interest as a rental expense.

A question we are often asked is, do I get any relief for mortgage interest now? It’s often misunderstood that although interest is no longer deductible in arriving at taxable rental profits, landlords are given a 20% tax reducer for the interest paid which basically restricts tax relief on mortgage interest to basic rate tax (20%).

What is a tax reducer?

A tax reducer is a reduction to your tax liability. For example, if mortgage interest was £2,500, you would be given a £500 tax reducer, which reduces your income tax liability for the year.

Landlords do still receive tax relief for mortgage interest paid, but it has been restricted to basic rate tax only. This means higher rate payers will only receive basic rate tax relief on mortgage payments.

Furthermore, if there is a rental loss, or if there is no income tax liability to reduce, the interest relief will be carried forward and used in future tax years.

So yes, tax relief is available, but it is restricted to basic rate tax relief only.