Mortgage Interest Relief Restrictions – Another Landlord Tax

Posted on April 5, 2017 by Walton & Allen

Mortgage interest relief and how landlords may have to pay more tax

From today (6 April 2017), mortgage interest tax relief available to Landlords for residential buy to let properties will be restricted. The restrictions are being imposed by Central Government on a tapered scale and so the full impact will not be felt until 2020/21.

Walton & Allen, in association with Beaumont Chapman Chartered Accountants, have analysed this impact so that Landlords can plan for their next and future tax returns.

For some Landlords the changes being introduced may not really start to take effect until 2020 onwards. However, for those who are higher rate tax payers and are currently incurring and offsetting significant mortgage interest against their rental income, these changes could result in a significant increase in the amount of tax they will pay.

We have worked some examples for Landlords who are in each of the different tax bands. In order to tailor the effects to the East Midlands property market, we have made the following assumptions;

Rental Income Received: £600 pcm or £7,200 p.a.
Purchase Price: £100,000<
Loan Amount: £75,000 (75% LTV)
Mortgage Interest Rate: 2.5% p.a.


There is no change in the tax payable if the tax payer is a basic rate tax payer as what they lose in the restriction is given back as a 20% tax credit.
If a Landlord is a higher rate tax payer, say earning other income of £55,000 or more, the tax will increase by approximately £100 a year. The new measures only adversely kick in for those landlords with high finance costs e.g. multiple properties or are highly geared.

For those landlords with high finance costs, e.g. In excess of £10,000 p.a. the impact on their tax liability will be much greater.

Mark BattyMark Batty, Director of Walton and Allen Letting Agents, said “Landlords, whilst being the Governments recent punch bag, are advised to make best use of any taxable deductions available to them, such as letting agents fees, management fees etc. to minimise their tax liabilities.”

Anoushka Akins

Anoushka Akins, of Accountants Beaumont Chapman added “It is important to keep a record of the interest that has been disallowed as it may be possible to claim a credit against future tax. Your accountant will be able to assist you with this or otherwise contact Beaumont Chapman on”

Every Landlord’s personal and property circumstances are different and so they are strongly advised to seek individual professional accountancy advice.

Have you also heard about the landlord selective licensing scheme where you may have to pay £600 to the city council, per property?

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up with repayments on your mortgage. Think carefully before securing a debt against your home.

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