Buy to let mortgage interest and tax relief

Date posted: 8th Feb 2023

Many residential landlords purchase their investment properties with the aid of a mortgage.

In the current climate of rising interest rates, landlords may be wondering whether any tax relief is available to help them. While tax relief is available for interest and finance costs (but not capital repayments), the nature of the relief depends on the type of let. The relief may also be capped if the landlord has extended the mortgage since first letting the property, particularly where funds are released and used for personal expenditure.

Sadly, no tax relief is available for interest on a loan to buy a main residence.

General rule

Regardless of the type of let, the general rule is that some tax relief is available for interest and finance costs on borrowings up to the market value of the property at the time that it was first let. The borrowings do not have to be secured on the let property – the landlord can release equity from their main home and use this to buy the let property and still claim tax relief for the associated interest.

To take advantage of rising house prices, the landlord may remortgage a property to release equity to use as a deposit to expand their property portfolio. It will be critical to look at the use of the funds released to determine the amount of tax relief available.

Residential lets

Stricter rules govern the tax relief that is available to unincorporated landlords letting residential properties. Here, relief is given as a tax deduction equal to 20% of the interest and finance costs (capped at the tax due on the rental profits). The landlord cannot deduct the interest and finance costs when calculating the taxable profits. This means that where the landlord is a higher or additional rate taxpayer, they do not get relief at their marginal rate of tax. The relief is capped at 20%.

Many landlords have therefore considered a) selling their portfolio – but this brings potential capital gains tax issues, b) utilising spouse allowances – tax planning is required and c) incorporating their portfolio – again, care is needed to ensure that you are aware of all tax issues.

Other lets

The rules applying to non-residential lets, including furnished holiday lettings, and to companies (regardless of the type of let) are more generous. Interest and finance costs can be deducted in full when calculating taxable profits, ensuring relief is given at the landlord’s marginal rate of tax.

We are well versed in property taxes and as ever would be happy to help, contact us here.


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