skip to navigationskip to main content

Phone: 01858 461164 

Email:

Relief for mortgage interest on let properties

Newsletter issue – March 2023

As an individual landlord you can‘t deduct finance costs, including interest, from your residential property rents for tax purposes. Instead, you get tax relief for those costs as a basic rate tax credit calculated as 20% of the lower of:

  • finance costs for the year plus any unused finance charges brought forward;
  • your property income profits with no deduction for finance costs, - or your adjusted total income for the year that exceeds your Personal Allowance.

In years where the property income is low, or a loss, little or no tax credit can be set-off, in which case the excess interest which is not relieved is carried forward to the next tax year.

Example

In 2021/22 Bob the Builder had trading profits of £13,500. It was his first year in which he let out a property and he received rents of £3,000, paid mortgage interest of £4,000 and incurred £6,500 of allowable expenses.

Bob made a loss of £3,500 (£3000 – 6500) on his property which can‘t be set against his trading profits. As Bob has zero property profits for the year, he can‘t set off a tax credit derived from his finance costs against his 2021/22 tax liability.

However, both his property loss of £3500 and the unused finance costs (£4000) are carried forward to the next tax year.

In 2022/23 Bob has a better year. He received rental income of £18,000, paid property expenses of £1500 and £6000 as interest. The loss from 2021/22 of £3500 is set against his rental income. His trading profits have also improved to £26,000.

The amount of tax credit is calculated as 20% of the lower of:

  • finance costs= £10,000 (£4,000 + £6000)
  • net property profits = £13,000 (18,000 – 1500 – 3500)
  • adjusted total income = £26,430 (26,000 + 13,000 - 12,570)

Bob‘s tax credit for 2022/23 is calculated as £10,000 x 20% = £2,000.

He has used all his property loss and obtained tax relief for the unused interest paid in 2021/22.

There is no limit on how many years the unrelieved finance costs can be carried forward.

Choosing a Service

Choosing an accountant that matches your needs

What Our Clients Say

Read the reviews from some of our satisfied clients

Free Initial Consultation

Understanding your accountancy requirements

Request a Callback

Lets talk at a more convenient time for you

Great reasons and promises we make to you which is why you should call us before deciding on your accountant.

Our Promises

Our Cloud Bookkeeping software package helps simplify bookkeeping, invoicing and accounting.

Client area