Tax relief on mortgage interest

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1st September 2016

Previous weeks we have talked about the increase in interest of BUY to LET investments. The new budget has potentially impacted on BUY to LET investors. Currently the amount of tax relief on mortgage interest an investor can claim is based on their marginal rate of tax, so if they are a higher rate tax payer, paying tax at 40% with some property profits, the reduction in taxable property income due to the ‘buy to let’ mortgage interest would have effectively given them tax relief at the 40%.

Moving forward this relief on the mortgage interest element will be limited to the basic rate of 20%. These rules are being phased in over a 4 year period starting in April 2017. This initially was a scenario we thought would only affect taxpayers who paid tax at the higher rates of tax but looking at the way the relief will be given as a tax reducer there will be potential huge impacts on even basic rate tax payer with high gearing. They could lose their personal allowances in some cases and we would recommend individuals with rental properties to talk about this as soon as possible. We will be looking at this in detail as we look more into this new legislation and will keep the website up to date as we go along.

Please call to discuss your personal situation.