The short version: Mortgage interest tax relief is what landlords can now claim on their finance costs. It’s a 20% tax credit rather than a full deduction, and it replaced the old more generous system.
How does it work now?
You’re taxed on your total rental income. Then you get a tax credit worth 20% of your mortgage interest payments. The credit reduces your tax bill but doesn’t reduce your taxable income.
What’s the practical effect?
Basic rate taxpayers are roughly in the same position as before. Higher rate taxpayers pay more tax than they used to. The higher your mortgage interest and the higher your tax rate, the bigger the impact.
What can you claim relief on?
Mortgage interest, interest on loans for furnishings, overdraft interest used for the rental business, and fees for arranging loans. You can’t claim relief on capital repayments, only the interest portion.
When do you claim?
Through your Self Assessment tax return. You’ll need records of all the interest you’ve paid during the tax year. Your mortgage statement should break this down for you.
Confused about how the new relief system affects your rental income? We can help you work out exactly where you stand.
