Prior to April 2025, landlords could deduct the full amount of mortgage interest paid on their FHLs from their rental income before calculating their tax liability.
From April 2025 onwards, the rules are changing. Instead of being able to deduct the full amount of mortgage interest, landlords are now subject to a restriction. They can only claim a basic rate tax credit (20%) on their mortgage interest payments.
Implications: This means that higher and additional rate taxpayers may end up paying more tax on their FHL income, as the tax relief is capped at the basic rate. It could lead to a significant increase in tax liability for some landlords.
Other Allowances: Landlords can still claim other allowable expenses related to the running of their FHLs, such as maintenance costs, utilities, and management fees.
Planning Considerations: Landlords may need to consider their overall tax position and potential strategies to mitigate the impact of these changes, such as restructuring ownership or considering alternative tax reliefs.
If your income is below the income threshold for paying tax, you won’t be able to claim the mortgage interest tax relief as a cash credit.
In summary, if you’re under the tax threshold, you won’t be able to benefit from the mortgage interest tax relief as there is no tax to offset. Carry forward losses from FHLs will be able to be offset against future profits of the property rental business generally (rather than just profits from the former FHL property).
