Example: Mortgage Interest Tax Relief from April 2020

You are a higher rate taxpayer and make a rental profit of £1,000 per month before accounting for £500 per month rental related interest on mortgage borrowings.

• Rental profit made is £12,000 x 40% =  £4,800

• Mortgage interest paid £6,000 x 20% =  £1,200

Tax due to HMRC - £3,600

Under the old rules your rental profit would have been £6,000 (£12,000-£6,000). The tax due on this would have been £2,400.

Therefore, as a higher rate taxpayer you are now liable to an additional £1,200 tax from some 4 years ago. Basic rate taxpayers are not affected by the changes.