From April 2017 the way you claim tax relief against a buy to let mortgage changed.If you pay income tax at 40% or 45%, and have a mortgage on your property, your buy to let profits could be severely reduced, or even wiped out. These changes will not affect you if you pay basic rate income tax at 20%.

Key points

  • Buy to let tax relief reduced from 2017 for higher rate income tax payers
  • 40% tax payers will pay additional tax on mortgage interest
  • Profits on buy to let for higher rate paying landlords with mortgages will reduce

About the buy to let tax relief changes

Currently, if you have a buy to let property with a mortgage, you can claim tax relief on the entire mortgage interest. You can deduct the whole of your interest only mortgage payment from the rent received, and offset this against your tax bill. This applies to you regardless of your income tax position. This is a significant benefit and contributes to reducing the overall tax bill for buy to let investment. Changes will be made to the system in stages from 2017 to 2020. From 2020, you will no longer be able to do a simple calculation to deduct the mortgage interest from the rental income. Instead you will need to add the total rental income to your other income. This may take you into a higher income tax range. The amount of interest you can claim for tax relief will be restricted to 20%. This means that if you are a 40% tax payer by 2020 you will be liable for 20% tax on this interest. Effectively, you will have to pay additional tax based on 20% of the mortgage interest. If you mortgage costs you £750 per month, this change will cost an additional £1,800 in tax per year.

An example

Rod, Jane and Freddie each own nearly identical buy to let properties in the same street in Colchester. The details of their properties are below:

  • Property value £150,000
  • Mortgage £100,000
  • Annual rent £9,000
  • Annual mortgage interest (at 5%) £5,000

The only difference with each investor is that Rod pays income tax at 20%, Jane at 40%, and Freddie at 45%. Here is a comparison of their buy to let tax position both now and after 2020.



  • Jane will pay additional tax of £1,000 from 2020, which will reduce her post tax income to 0.9%, which is a reduction in income of 44%
  • Freddie will pay additional tax of £1,250 from 2020, which will reduce his post tax income to 0.6%, which is a reduction in income of 60%
  • Rod’s tax position as a 20% tax payer is unchanged

Obviously, the figures for your own buy to let property depend on:

  • The value of your property
  • The cost of your mortgage interest
  • Your tax position
  • The rent received (after allowable deductions)


Reviewing your buy to let investments

If you are a 40% or 45% tax payer with a mortgage on your buy to let property, you should review your exact tax position before 2017 to make sure that buy to let investment is still right for you. Please contact us if you would like to examine the figures for your specific property.

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About Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning

Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.