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Discover how to claim your 20% tax credit. ERAA Consulting Limited are UK Property Accountants & Property Tax Specialists

Understanding UK Mortgage Interest Tax Relief for Landlords

Staying on top of tax rules is crucial to maximising your rental income with the help of Property accountants UK. Let’s break down everything you need to know about mortgage interest tax relief. We’ll explain how it affects your tax liability. ERAA Consulting Limited are UK Property Accountants & Property Tax Specialists.

A reminder of changes in 2020?

Before April 2017, landlords could deduct mortgage interest and other finance costs directly from their rental income. The higher and additional rate taxpayers could benefit from tax relief at their marginal rate (40% or 45%).

But then, individual landlords were no longer allowed to deduct mortgage interest from rental income. Instead, you’re now entitled to a 20% tax credit on your mortgage interest payments.

How Does the 20% Tax Credit Work?

Here’s a simple example to illustrate how the new system works:

Rental Income: £20,000
Mortgage Interest Paid: £5,000

Under the current rules:

You’ll pay tax on the full £20,000 rental income (after deducting other allowable expenses).
You can claim a tax credit worth 20% of the £5,000 mortgage interest. This amounts to £1,000.
This £1,000 is deducted from your final tax liability.

Therefore, higher and additional rate taxpayers can not benefit from tax relief at their marginal rate. Instead, the relief is capped at 20% for all taxpayers.

What Does This Mean for You?

The above could significantly impact your tax liability. Here’s what you need to keep in mind:

Plan Ahead: Ensure you’re setting aside enough funds to cover your tax bill.
Claim Allowable Expenses: Other expenses, such as property maintenance, letting agent fees, and insurance, are still deductible. Make sure you’re claiming everything you’re entitled to.
Consider Incorporation: Some landlords have chosen to transfer their properties into a limited company to benefit from different tax rules. However, this isn’t the right solution for everyone. Seek professional advice before making any decisions.

How Eraa Consulting Can Help

Navigating the complexities of property income tax can be challenging. At Eraa Consulting, we specialise in helping landlords and property investors optimise their tax position.

Our services include:

Personalised Tax Planning: Tailored advice to help you minimize your tax liability.
Allowable Expense Reviews: Ensuring you’re claiming all the expenses you’re entitled to.
Incorporation Advice: Is a limited company is the right move for you.

👉 Book a Free Consultation Today: Let us take the stress out of your tax planning. ERA Consulting are Property accountants UK. Visit https://eraaconsulting.co.uk to get started.

Frequently Asked Questions (FAQs)

Q1: Can I still deduct mortgage interest from my rental income?
No for individual landlords. Instead, you can claim a 20% tax credit on your mortgage interest payments.

Q2: Does this affect all landlords?
Yes, these rules apply to individual landlords. Different rules apply for limited companies owning the properties.

Q3: How can I reduce my tax liability as a landlord?
Ensure you’re claiming all allowable expenses. Consider incorporating your property portfolio (if appropriate). Seek professional tax advice to optimise your position.

Conclusion

The mortgage interest tax relief have significantly impacted UK landlords. Particularly higher and additional rate taxpayers. By understanding the rules and planning ahead, you can minimize your tax liability. This will help to maximize your rental income.

Need help with your tax planning?. The team at Eraa Consulting is here to help. ERAA Consulting Limited are UK Property Accountants & Property Tax Specialists. ERAA Consulting expert Property accountants UK.