Changes to Mortgage Tax Releif for Landlords | Romans

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9 May 2017

Mortgage tax relief changes for Landlords

Author: Michael Cook

From April 2017, landlords’ ability to deduct mortgage interest payments from their rental income is gradually being phased out. A recent study demonstrated that 47% of landlords did not know how the mortgage tax relief changes will affect them between now and 2020. The changes will be gradually phased in over the next four years so its important landlords review the changes and take action sooner rather than later. 

Who the changes will effect

Any landlords who have a mortgage on a residential UK property. They do not apply to landlords of furnished holiday lets and commercial properties.

What the changes mean for landlords

Before April 2017, landlords were able to deduct both allowable expenses and mortgage interest costs from their rental income when declaring their profits to HMRC.

The changes will be phased over the next 4 years:

By April 2020, landlords will not be able to claim tax relief on mortgage interest charges. Instead, landlords will receive a reduction on their final tax bill equating to 20% of the mortgage interest costs regardless of their tax bracket.

Some landlords who are currently on the threshold of a higher tax bracket may be forced into the next band and see an increase in their tax liability.

How landlords can negate the changes

The only way around these changes are to own your properties as part of a limited company. However, this can have implications in terms of national insurance tax and might not always be the most financially viable option.

These changes stress the importance of landlords ensuring they are making the maximum profit from their investment. The first step is to obtain an up-to-date, accurate rental valuation and, if demand is strong for similar properties in your local area, your letting agent will advise an increase in rent.

Michael Cook, Romans Lettings Managing Director, comments: “Landlords need to understand how all these changes affect them, and seek advice to make the right decisions for their individual circumstances. This includes mortgage and tax advice from professionals and investment advice from local property experts.

“We know that more people will be renting in years to come, and this is why so many landlords are saying they plan to expand their portfolios. They see the bigger picture – the long term success of property investment."

Michael concludes: “All the projections for rental growth and capital appreciation over the next 5-10 years make property a very attractive asset class.”

We strongly recommend speaking to a financial advisor to ascertain how you will be affected by these changes and obtaining an up-to-date rental valuation. To get an up-to-date rental valuation call 01344 985 870 or click here!

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