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Murray Beith Murray is a leading Scottish private client law firm.

For over 170 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.

2 minutes reading time (400 words)

Mortgage Interest Relief - Going, Going, Gone!

david windramThe end of the current tax year will see the phasing out period finalised in respect of relief for mortgage interest on rental profits.  

From 6 April 2020, there will be a straight tax relief against a landlord’s tax liability at the rate of 20% of the total mortgage interest paid. 

The examples below illustrate the impact of the change in how relief is given on a higher rate tax payer with mortgage interest of £3,000.

Pre 5 April 2017 – prior to change in relief

£

 

Rental Income

10,000

Less: Mortgage Interest

(3,000)

Taxable Rental Profits

7,000

Tax Liability 

@ higher rate (40%)

2,800

 

Post 6 April 2020 – relief fully withdrawn

£

 

Rental Income

10,000

Less: Mortgage Interest relief

Not allowable

Taxable income

10,000

Tax Liability 

@ higher rate (40%)

4.000

Less tax relief (£3,000 @ 20%)

(600)

Tax payable

3,400

 

In this illustration, the change has given rise in an additional £600 tax payable, resulting in 34% of rental income being paid in tax, as opposed to 28% under the old rules. This difference will only increase as the level of rental income increases.

One point to note is the basic rate tax relief cannot produce a rental loss, however any unused finance costs can be carried forward and added to the finance costs of future years.

Next Steps

Over the phasing out period taxpayers have been exploring a number of possibilities to combat these changes. For example, transferring properties into a limited company, restructuring mortgage agreements to reduce interest as far as possible or disposing of property altogether.  There are of course, associated tax consequences with these options.

Our link advises on the changes to lettings relief, private residence relief and new reporting requirements on property disposals introduced by the present Government.

Contact our Personal Tax Practitioners, Edinburgh

If this blog has raised any questions, or you would like to discuss your tax position, please get in touch with Murray Beith Murray today using the Enquiry Form or call us now on 0131 225 1200

At Murray Beith Murray, we are more than just tax practitioners - we are trusted advisors. We are dedicated to helping our clients solve problems and preserve their wealth. Our highly personal service reflects our culture, which is centred on integrity, trust and expertise, and the guidance we provide has been designed to be an investment, not an expense.

How can I reclaim tax?
It is not too late to carry out tax planning in th...

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