is mortgage interest tax deductible uk?

February 26, 2024

77
Mortgage interest is not tax-deductible for residential mortgages. However, for landlords with buy-to-let properties, mortgage interest can be claimed as a tax deduction against rental income, but through a tax credit system rather than a direct deduction from income.

For Residential Mortgages:

Homeowners with residential mortgages (those who have bought their homes to live in) cannot deduct mortgage interest from their income tax. The interest paid on a residential mortgage does not qualify for tax relief.

For Buy-to-Let Mortgages:

Landlords used to be able to claim tax relief on their mortgage interest payments at their marginal tax rate. However, since April 2020, this system has been replaced by a tax credit system.
  • Tax Credit System: Landlords can receive a tax credit, based on 20% of their mortgage interest payments, regardless of their income tax band. This change means higher-rate and additional-rate taxpayers no longer receive relief at their higher rates.

Considerations for Property Investors:

  • Tax Credit Limitation: The shift to a tax credit system effectively reduces the tax relief for higher and additional-rate taxpayers.
  • Structuring Investments: Some landlords have considered structuring their property investments through limited companies, as corporate entities can still deduct mortgage interest as a business expense. However, this approach comes with its own set of tax implications and responsibilities.

Seek Professional Advice:

Given the complexity and potential for significant financial impact, it’s advisable for property investors and homeowners to seek professional tax advice. A tax consultant or financial adviser can provide personalised guidance, ensuring you navigate these rules effectively and optimise your tax position.

Conclusion:

While mortgage interest is not tax-deductible for homeowners in the UK, landlords can benefit from a tax credit for their buy-to-let mortgage interest. The rules surrounding these deductions are complex and have evolved over time, highlighting the importance of staying informed and consulting with tax professionals.

Answered by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

18.03.2024

Answered by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

18.03.2024

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