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TAX TIP TUESDAY: Claiming Tax Relief on Mortgage Interest – Where Are We Now?

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.  Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. The Financial Conduct Authority does not regulate tax advice. 


Up until now, it’s been relatively simple for landlords to get tax relief for interest and financing costs. The system was highly beneficial because they were able to receive relief at a marginal tax rate. All landlords needed to do was deduct these expenses from their rental profit calculations.

Relief by reduction is slightly more involved, however. The interest (or during years of transition, the percentage of interest) is not a factor and all your relief comes in the form of a basic rate tax deduction instead.


The 2017/18 tax year brought about a few changes, including the process of acquiring tax relief.

Instead of getting relief in the form of a deduction, landlords will now have to get their relief as a basic rate tax deduction. Once the switch fully comes into effect, which will take about four years, landlords operating their property business unincorporated will get the basic rate tax deduction, no matter what tax rate the landlord currently pays.

The phase-in of the new approach will go as follows: each year relief for interest deduction will decrease while the relief provided as a basic rate deduction will increase – from 75%/25%, respectively – until eventually in 2020/21, when 100% is provided as a deduction.


Are there any other tax relief options?

There is a bit of a loophole to be explored when it comes to interest and finance costs. You are eligible for relief on the interest from a loan up to the value of the property that you take out, but the loan does not necessarily need to be for your rental property. You can also seek relief for any costs you incur during the loan process, assuming the interest also qualifies.

If the taxable profits come in and they are less than interest costs, they are able to get the reduction capped. It will be 20% of the lower of finance costs not already deducted, profits in the tax year, and income earned above the personal allowance.

It doesn’t matter which way you calculate your profits – accruals or cash basis – the new rules apply. If you are running an unincorporated property business with £150,000 or less in rental income and you meet all the other requirements, you should already be using the cash basis as your default calculation.

These changes, unfortunately, will only help to reduce your tax bill – tax repayments will become a thing of the past.  You can, however, roll over any interest costs to the next year. Essentially, this means that as the years progress you could be facing higher tax payments even if everything about your business remains the same.


Contact us

If you’re a landlord, be sure to keep up with all the news and updates surrounding this tax relief shift. If you have any questions about the impact the changes will make to your bottom line, get in touch with us today.


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