Tax relief on mortgage interest for landlords starts to reduce

The start of the new tax year on April 6 has ushered in changes to Buy to Let tax relief which gradually restrict the amount of relief landlords can claim on mortgage interest payments.

Landlords previously could claim tax relief back at their marginal tax rate which meant basic, higher, and additional rate taxpayers were able to benefit from relief at 20%, 40% or 45% respectively.

Since April 6, however, this deduction from income has been restricted to 75% of finance costs, with the remaining 25% as a basic rate tax reduction. Next tax year, which begins on 6th April 2018, the reduction in the mortgage interest allowance is 50%, and then 75% in the 2019-20 tax year. From 2020-21 onwards, it will only be possible to reclaim tax relief at the basic rate, whatever rate of tax you pay.
Find out more about tax and Buy to Let property here.

Remortgaging to reduce Buy to Let mortgage costs is one way landlords may be able to turn any potential losses that arise due to changes in tax relief back into a profit, so check your current rate and see if you might be able to make savings by switching to a better deal.

Landlords who hold their properties in a limited company won’t be affected by changes to tax relief, and so can carry on claiming relief at up to 45% depending on their marginal rate.

However, if you’re considering setting up a company for your existing Buy to Let properties, remember that there will be significant costs involved. The company would have to buy your properties, leaving you facing stamp duty, and potentially a hefty capital gains tax (CGT) bill depending on the market value of the properties at the time. You should therefore always seek professional advice if you are considering taking this route.