The short version: Mortgage interest is what the bank charges you for lending you money to buy a property. If you’re a landlord, how this affects your tax has changed significantly in recent years.
How do mortgage rates work?
You either have a fixed rate (same payment for a set period) or a variable rate (can go up or down). Fixed rates give you certainty. Variable rates might be cheaper initially but carry more risk.
What about landlords?
Before 2017, landlords could deduct all their mortgage interest from rental income before calculating tax. That’s been phased out. Now you get a tax credit at the basic rate instead, regardless of what tax band you’re in.
Why does this matter?
If you’re a higher rate taxpayer, you’re worse off than before. You’re taxed on your full rental income, then get a 20% credit back. The net effect is paying more tax than under the old system.
This hit landlords with large mortgages and higher incomes hardest. Some found their buy to let investments became much less profitable overnight.
Can I still claim anything?
The 20% tax credit is still available. You claim it through Self Assessment. It applies to mortgage interest, loan interest for furnishings, and fees for arranging finance.
Landlord wondering how mortgage interest affects your tax? Get in touch and we’ll calculate the impact.
