Mortgage interest relief on rental properties

18th March 2019

Residential landlords have had a lot to put up with in recent years, and changes to mortgage interest relief are set to add another blow next month. 

The changes have been labelled the Alice in Wonderland tax and the tenant tax since being announced in former chancellor George Osborne’s emergency Budget 2015. 

Neither of those terms clarifies mortgage interest relief to the average residential landlord, so let’s get to the bottom of this before the changes come into force on 6 April 2019. 

Mortgage interest relief: the old rules

It was previously possible for us or your agents to deduct mortgage interest and any associated costs before calculating your taxable profits.

That changed in April 2017 when the relief began to be gradually eroded by HMRC at a rate of 25% a year, to the point it will be rendered obsolete by April 2020. 

Mortgage interest relief: the present

You can claim 50% mortgage interest tax relief on rental income earned in 2018/19, but this will reduce further to 25% from next month. 

This will affect some landlords more than others, but one of the hardest groups hit will be those who have invested in buy-to-lets to provide a main source of income. 

For the purpose of example, Jess is retired and owns several residential buy-to-lets which provide her with annual income totalling £60,000. 

She took out mortgages on all of her buy-to-let properties and pays annual interest of £25,000 on all of those. 

Her profits will be negatively affected by thousands of pounds over the next two years as mortgage interest relief is fully phased out.  

If you are in a similar boat, speak to us to find out how your profits could be hit. 

Life after mortgage interest relief

Landlords have just over 12 months until April 2020 arrives and from that point they will not be able to deduct their entire mortgage costs from their rental income. 

The new 20% tax credit is less generous that the current regime, and means all of your rental costs will be liable for tax. 

It comes as no surprise to learn that many buy-to-let landlords – up to 4,000 a month – are selling up, according to figures  from the Ministry of Housing, Communities and Local Government.

If you’re considering following suit between now and April 2020, sound out one of our advisers first as capital gains tax liabilities may arise. 

Get in touch

We’re happy to talk you through changes to mortgage interest relief in more detail. Contact us on 0117 973 3377 or email us at  to find out more. 

Despite our recent merger with Burnside Chartered Accountants, you will still be able to communicate with us using these details.