Landlords have seen several tax changes to their detriment in the last few years. We wrote to all our clients in March regarding one of the most significant tax changes, the mortgage interest relief restriction.
We are now in the third year of the transitional changes restricting the deductibility of the mortgage interest for individuals with mortgages on residential properties they are renting. Prior to the 2017/2018 tax year, the interest element of the mortgage payments was fully deductible in calculating the taxable profit on which landlords were taxed. Then the restriction started to take effect:
- 2017/2018 tax year, 25% of the mortgage interest was only relievable as a ‘tax reducer’ and relieved at a maximum of 20%. The remaining 75% was deductible in the traditional way.
- 2018/2019 tax year, this split was changed to 50% deducted against the profit and 50% of the interest deducted as a tax reducer.
- The current tax year (2019/2020) is the final year of transitioning, with 25% being deducted against the rental income and 75% being relieved at 20% against the taxable profit.
