New announcement. Learn more

CHARTERED ACCOUNTANTS (ICAEW)

News and advice to help make your property business a success

LANDLORDS FINANCIAL BLOG

All

Landlords Tax Property Tax Landlords Tax Returns Landlords Accounts Property Tax Return Property Accounts Landlords Financial Landlords Accountant Tax Returns Tax VAT Chartered Accountants Online Accountant Online Bookkeeping Online Tax Returns Your Online Accountant Your Online Bookkeeper Businessadvice HMRC Accounting NIC SDLT Expenses Property Cashflow Dividends FHLs Investment Property Tax PAYE Property Accountant Smallbusiness Businesstips Capital Gains Tax Furnished Holiday Lettings Ihtexemptions Income Tax Inheritance Tax Sole Trader Tax Implications Tax Relief Taxplanning Cgt Gifts Holiday Lets Tax ISA Landlord Repairs Pension Property bookkeeper Property Letting Taxreturn VAT invoice Allowable Business Expenses Annual Exempt Amount Bad Debt Tax Relief BADR Benefits in Kind Business Expenses Business Rate Business tips Capital Allowances Capital Gains Capital gains tax property Cashbasis Child Benefit Compliance Deductibleexpenses Directors Loans Disincorporation Employment Allowance Finance Financialmanagement Flat Rate Scheme HMRC complaints Lettings Making Tax Digital MakingTaxDigital Mileage Allowance Mobilephones MTD MTD Update National Insurance Overlaprelief Partnership Partnershipbusinesses Payrolling Ppr Property Company Tax Property Tax Deductible Expenses Propertyallowance Reimbursedexpenses Relief Rent a Room Relief Rental Residence Relief Residential property gains Selfemployed Small Business Stamp duty Tax free income TimetoPay Working from home 60 day capital gains limit Abolitionclass2 Accrualsbasis Acquisitions ADR Advisoryfuelrates Agricultural Property Relief AI AirBnB Alphabet shares Amap Annual Tax on Enveloped Dwellings Appeal Artificial intelligence Assessment Asset disposal Associated Company Associated Company Tax Rules Autumnstatement Bad Debt Baddebts Badgesoftrade Beancounter Breakeven Point Budget Business advice Business asset deferment Business coach Business Continuity Business Entertainment Business Rates Business Rates Relief Businessgrowth Businesstypes Buy or Lease Equipment Buytolet Capital Allowances for Cars Capital Gain Capitalallowances Capitalexpenditure Car Capital Allowances Carry Back Losses Change of Tax Basis ChatGPT CIS Scheme Class 2 NIC Class 3 NIC Commercial Property Common Tenant Companies Expenditure Companies House Company Account Deadlines Company Account Filing Company Strike Off Company Tax Efficient Property Companyassociation Companyloanstaxfree Compulsory Strike Off Construction Industry Scheme Contacthmrc Contentmarketing Contributions Corporation Tax Losses Corporation Tax New Regime Corporation Tax Rates CorporationTax Costs Cryptocurrency Customerlistimplications Deductible Business Expenses Deductions Deferring NIC Demerger Depreciation Development Directors Directorsloans Disallowable Business Expenses Discovery Disposals Dispute Resolution Dividend allowance Dividend Allowance Reduction Dividend Planning Dividendallowance DLA Domestic Items Tax Relief Dormantcompany EIS Employee Discount Employee management Employeecompensationpayments EmployeeOwnershipTrust Employers NIC Endoflifeplanning Enquiry EnterpriseResourcePlanning Entertainment Entrepreneurmindset Equity Expenses Allowed For Tax Extrabenefit Eyetests Flipping Furnished Holiday Lets Tax Gift Aid Gift Allowance Growthhacks Help to pay tax bills HICBC HMO Licensing Fees Holdoverrelief Holiday Lettings Tax Home responsibilities protection How to apply for a Business Loan How to Extract Profit Humour Hybrid Illegaldividends Income Income and Gains Inflationary Gains Influencers Inheritance Tax Nil Rate Band Interest Rates Interestrelief Interestrestriction Invoicing IR35 Joint Tenant Keypersoninsurance Landlords Self Assessment Late vat registration LBTT Leadgeneration Leadmagnet Leanbusinessmodel Lending Letting Agent Disbursements Letting Agent Recharres Lettings Relief Lifetime Limit Limitedcompany Liquidation Demerger Loan Loaninterest Long Lets Tax Longservice LTT Mainresidencerelief Managed Lets Management accounting Maritalhomedivorce Marriage allowance Marriageallowance Mileage payment Minimumwage Mixedusesdlt Mortgage costs Mortgage Interest Relief New property Newcompanycarfuelrates Newnicrules NIC 2023 to 2024 NIC savings Nicdisregard Nicreduction NMW Nmwerrors Non Allowable Business Expenses Non-taxable Nudgeletter Optiontotaxvat Overpayment Relief Overseas properties Paperform Partnership schemes Parttime Patternofoccupancy PAYE by Direct Debit Payroll Penaltypoints Pension Payments Tax Relief Pensioncontributions Pensions Performance-reviews Periodofgrace Periodsofabsence Personal Expenses Personal finance Personalallowance Personalguarantees Postcessationrelief Pretradingexpenses Profit Profit-and-loss ProfitAndLoss Property Allowance Property Development Company Property Incorporation Property Investment Company Property investor accounts Property investor tax tips Property Rental Business Property Trading Propertycompany PRR R40 Recharges by Estate Agents Refund Regularpayments Rent your drive Rentaroom Research & Devolopment Residentialsdlt Retail stock control Retainedprofits Revenue Room for rent tax Rti SA Salary Salary Sacrifice Savings SDLT changes Section 455 Tax Section455tax Selective Licences Landlords Self Assessment Self-employednic Selling Online Seperation Servicecharges Settlementslegislation Simplified Expenses Smallbiz Smallbusinessraterelief Software Spring Budget Staffparties Starting a business Student Loan Deductions SuccessJourney Surplus Cash Tax Allowance on Driveways Tax Allowances Tax bill Tax Break Tax Codes Tax Deadlines Tax Deductions Tax Filing Deadlines Tax Free Childcare Tax on Company Vans Tax position Tax Refund Tax tips for landlords Tax-free savings income Taxbillpayments Taxconsequences Taxincentives Taxposition Taxpositionassets Taxrelief Taxreliefs Taxses Terminationpayments Tips Trade professional Trading losses Training Transfer Assets Transfer Assets Between Spouses Travel Umbrellacompany Undisclosedincome Unpaid Rent VAT Bad Debt Relief VAT Deadlines VAT Disbursements VAT flat rate scheme VAT Penalties VAT registration VAT Reverse Charge Vatpenalties Vatregistered Vatregistrationthreshold Wellbeing

TAGS

Mortgage interest and tax relief

March 1, 2023

Mortgage interest and tax relief

Many landlords purchase their investment properties with the aid of a mortgage. In the current climate of rising interest rates, landlords may be wondering whether any tax relief is available to help them. While tax relief is available for interest and finance costs (but not capital repayments), the nature of the relief depends on the type of let. The relief may also be capped if the landlord has extended the mortgage since first letting the property.

No tax relief is available for interest on a loan to buy a main residence.

General rule

Regardless of the type of let, the general rule is that tax relief is available for interest and finance costs on borrowings up to the market value of the property at the time that it was first let. The borrowings do not have to be secured on the let property – the landlord can release equity from their main home and use this to buy the let property and still claim tax relief for the associated interest.

To take advantage of rising house prices, the landlord may remortage a property to release equity to use as a deposit to expand their property portfolio. However, from a tax relief perspective, problems arise if the borrowing exceeds the value of the property when first let as relief is only available on borrowings up to that level. Interest paid on borrowings in excess of this does not qualify for relief.

Example

Julie bought an investment property many years ago for £100,000, letting it immediately. The property is now worth £500,000 and Julie has released equity to expand her portfolio. The mortgage is currently £400,000. Julie is only eligible for tax relief on borrowing of £100,000; no relief is available for the interest payable on the remaining £300,000.

Residential lets

Stricter rules govern the tax relief that is available to unincorporated landlords letting residential properties. Here, relief is given as a tax deduction equal to 20% of the interest and finance costs (capped at the tax due on the rental profits). The landlord cannot deduct the interest and finance costs when calculating the taxable profits. This means that where the landlord is a higher or additional rate taxpayer, they do not get relief at their marginal rate of tax. The relief is capped at 20%.

Other lets

The rules applying to non-residential lets, including furnished holiday lettings, and to companies (regardless of the type of let) are more generous. Interest and finance costs can be deducted in full when calculating taxable profits, ensuring relief is given at the landlord’s marginal rate of tax.

Mortgage Interest Relief

Landlords Tax

Landlords Accounts

Property Tax

Property Accounts

Landlords Tax Returns

Property Tax Return