Higher rate tax relief is restricted for buy-to-let landlords on the costs of finance, such as mortgage interest, from 6 April 2017 onwards.

Subscribers, click here for your detailed version of this note. We also have a Client briefing for subscribers to give to their clients.

Who is affected?

Complications for basic rate taxpayers

Practical considerations:

Phased introduction:

The change is being introduced gradually from April 2017 as follows:

Year % of costs deducted from profits % of costs available as a basic rate deduction
2017/18   75% 25%
2018/19   50% 50%
2019/20   25% 75%
2020/21   - 100%


Further restrictions

The basic rate deduction is up to 20% of the disallowed finance costs.  The deduction is restricted in some circumstances, such as the following:

When there is a restriction, any finance costs which have not been used to calculate the basic rate deduction in one year can be carried forward and added to the finance costs of the following year.

For worked examples see:

Restricting mortgage interest relief (subscriber guide)
This practical guide explains the detail behind the restriction on interest relief, it comes with examples to assist landlords in making the right choices in restructuring their property businesses.

Incorporating a buy to let business
This guide illustrates some of the tax savings that may be achieved by running the business via a company.

Our Land & Property section
This contains our guides on this topic.