Landlords Lose Mortgage Interest Tax Relief From Now

Landlords lose the right to claim full tax relief for mortgage interest payments from today (April 5, 2017).

Many landlords will pay more tax as property business profits also change.

Despite a year of protests and a High Court legal challenge, the government has stood firm on the proposals made by former Chancellor George Osborne and has resolutely refused even to water them down.

Mortgage interest tax relief changes are the last in four significant changes to the property investment market over recent months.

The first was a 3% stamp duty surcharge for buyers of investment property.

Then, the annual 10% wear and tear allowance was scrapped in favour of replacement relief. Wear and tear were paid regardless of if the money spent was maintaining homes to rent by landlords, and replacement relief is only paid if the cash is spent.

Next, the Bank of England tightened buy-to-let mortgage rules to make borrowing more challenging for landlords.

The mortgage interest relief change stops landlords paying higher or additional rate tax (40% or 45%) from claiming more than basic rate tax relief (20%) on the interest they pay on loans against homes to rent.

The full impact of the measure will not be felt for three years, as the changes are phased in and gradually reduced by 2020.

This tax year, landlords paying tax at the higher rate and above can only offset 75% of mortgage interest against property profits. Next year, this falls to 50%, then 25% in 2019.

The government reckons around 440,000 landlords will pay more tax because of the change.

The best way of minimising the tax grab is to look at how a spouse owns investment properties. Adjusting ownership shares can make a significant financial difference if a spouse is a basic rate taxpayer with unused personal tax allowances.

Investigating if refinancing borrowing reduces the interest paid is also worthwhile.