From April 2017 HMRC have introduced restrictions on the amount of mortgage interest that can be offset against rental income for landlords.

Tax relief on mortgage interest suffered will be restricted to the basic rate of tax, currently 20%.  Meaning that any landlords that are higher rate taxpayers, will receive tax relief at 20% rather than 40%.

The new rules are being introduced gradually from the 2017/18 tax year, when 75% of finance costs will be allowed at the higher rate, this falls to 50% in 2018/19, only 25% of finance costs will be allowed at the higher rate in 2019/20 and the higher rate relief will be fully removed by 6 April 2020.

The removal of the interest relief will mean that some landlords not only lose the tax relief but also find their taxable income is higher and this could have implications for child benefit and potential loss of other tax allowances.


Consideration should be given to alternatives, which may reduce the impact;

Some property owners may look at the potential for transferring the property into a limited company,   a limited company would pay tax on profits at just 19% but such a transfer may have other tax implications such as stamp duty on the transfer price and capital gains tax on any uplift in the property value.

Another alternative is to change the use of the property and turn it into furnished holiday letting, there are currently no proposals to restrict mortgage interest relief for furnished holiday lets.

If the properties are mortgaged though, it is possible that the lenders could have issues with the change of legal ownership or use of the property.

<< Back to Blog