Before 2017 mortgage interest was 100% tax deductible many landlords took advantage of this through interest-only mortgages. However, since April 2017 HMRC have begun to phase this out meaning by April 2020 you will no longer be able to claim tax relief on mortgage interest.
Instead 100% of mortgage interest will qualify for the 20% tax credit the 20% tax credit will apply to the lowest of:
- Mortgage interest
- Property profits
- Total income above personal allowance.
This could be problematic for landlords and you may pay a higher amount of tax if by removing the interest tax relief tips you into the higher rate tax band. This is dependent on your total income (whether it is above the £50,000 band with exception to allowable expenses) and whether you make significant investments in your buy-to-let property. If you do not go into the higher tax rate, then you will see no significant change.
Landlords may benefit from carrying forward unclaimed finance costs. Investment in a property (e.g. repairs or renovations) means your property profits (rental income minus expenses) might be lower. If this is the case, landlords will apply the 20% tax credit to this amount, and then claim the difference between property profits and mortgage interest next year.
At LJS, we understand that not all landlords have extensive experience in managing tax and deductions. We are here to save you time and hassle: providing a professional and reliable service.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.