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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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New tax rules on rental income and interest expense claims

Resolved Question:

New tax rules on rental income and interest expense claims
Hi - I've read that there are new rules regarding allowing mortgage interest against rental income.
This is being phased in over FY16 and FY17.
Please explain how the new rules work?
Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

You can read about the new rules on buy to let mortgage interest tax relief here. The don't start until 6 April 2017.

As of now, allowable mortgage interest is given as a straight deduction from rental income together with other expenses so tax relief can be at 20%, 40% or 45% depending on the taxpayer's total income. From 6 April 2017, 75% of the interest will be allowed as a straight deduction from rental income and 25% will be given tax relief at 20% . From 6 April 2018, 50% of the interest will be allowed as a straight deduction from rental income and 50% will be given tax relief at 20%. From 6 April 2019, 25% of the interest will be allowed as a straight deduction from rental income and 75% will be given tax relief at 20%. From 6 April 2020, tax relief for 100% of allowable mortgage interest will be given at 20%.

If you are a 40% taxpayer, you currently save £400 in tax for every £1,000 of allowable buy to let loan interest. From 6 April 2020, the tax relief will be £200 for every £1,000 of buy to let loan interest.

I hope this helps but let me know if you have any further questions.

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