Mortgage Interest Relief

Mortgage Interest Relief

Landlords there has been some changes to mortgage tax relief that you may not be aware of. New government legislation means that mortgage tax relief will be reduced to 20%, it will be implemented between 2017 and 2020.

What does this mean?

It means that landlords will not be able to offset as much of their financial interest against their rental profits. This will result in your tax bill increasing. Here at Simple Tax Returns we want to help our customers, we have some potential solutions that could work for you.

Option 1:

If you set up a limited company, you would not be affected by these changes to mortgage interest tax relief. If you transferred your ownership to the proposed company it would act as a sale and you would be liable for Capital Gains Tax to be paid on the property. This may decrease the likelihood of financial institutions issuing home loans to companies for proposed mortgages.

Option 2:

If the landlord transferred ownership to a spouse or partner who is in a lower tax bracket then they would be but again there could be Capital Gains Tax implications. If this is a potential option, check to see if the spouse/partner moves into a higher tax bracket because of them taking ownership.

The other potential options are:

  • Pay of borrowings on high-interest mortgages
  • Re-mortgage to a lower interest rate borrowing
  • Consider selling your high mortgage properties
  • Make pension and gift aid contributions
  • Claim allowance and expenses
  • Spend more money on repairing the property to lower taxable rental profits

The landlord wear and tear allowance legislation has changed!

Landlords can no longer deduct 10% of their rental profits as notational wear and tear. They will be able to claim tax relief only on costs they have incurred in replacement items or repairs. The relief systems will be refund the cost of a like for like replacement, or the nearest modern equivalent as well as the cost for the disposal of the old goods.

If you would like any further information on mortgage tax relief or wear and tear allowance or if you have any other queries then please get in touch, we are here to help!