Rental Mortgage Tax Relief Phased Out
Since April 2017, tax relief on mortgage interest has been gradually phased out. From April 2020, you can longer deduct any of your mortgage expenses directly from rental income to reduce your tax bill. Instead, you will receive a fixed 20% tax credit of your mortgage interest payments. If you are a higher-rate taxpayer you will be hit hardest as under the old rules you effectively received 40% or 45% tax relief on the rental related mortgage interest paid. The change has a more alarming impact in that it could push a basic rate taxpayer into the higher rate tax bracket as your pre mortgage interest profit is classed as income for the tax year. The fixed 20% tax credit only reduces your final tax liability, not the actual rental profit.
To add insult to injury the ‘deemed increase in your rental profit’ may take your taxable income over £50,000 at which point you start to lose your entitlement to child benefit.