What are the tax implications for the finance cost relief restrictions? May I claim mortgage interest on my tax return?
Finance cost relief
Still puzzled by the S24 restriction or finance cost relief? See the easy-to-read full explanation.
May I still claim tax relief for mortgage interest?
From 6th April 2020 the tax relief that individual landlords of residential properties get for finance costs has been restricted to the basic rate of Income Tax. The finance cost relief is given as a reduction in tax due.
The definition of finance costs includes: mortgage interest and interest on loans to buy furnishings and suchlike. Relief is also available for the incidental costs of obtaining finance, as long as the interest on the loan is allowable. Incidental costs of loan finance include: items such as arrangement fees, and fees incurred when taking out or repaying loans or mortgages.
How the tax reduction is worked out
The reduction is the basic rate value of the lower of:
Finance costs – costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward
Property business profits – the profits of the property business in the tax year (after using any brought forward losses)
Adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your Personal Allowance.
May I still claim tax relief for mortgage interest?
From 6th April 2020 the tax relief that individual landlords of residential properties get for finance costs has been restricted to the basic rate of Income Tax. The finance cost relief is given as a reduction in tax due, and no deduction may be made in arriving at profit.
The definition of finance costs includes: mortgage interest and interest on loans to buy furnishings and suchlike. Relief is also available for the incidental costs of obtaining finance, as long as the interest on the loan is allowable. Incidental costs of loan finance include: items such as arrangement fees, and fees incurred when taking out or repaying loans or mortgages.
How the tax reduction is worked out
The reduction is the basic rate value (currently 20%, correct for 2024-25) of the lower of:
- Finance costs – costs of the year plus any unused finance costs brought forward.
- Property business profits – the profits of the property business in the tax year (after using any brought forward losses).
- Adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your Personal Allowance.
The tax reduction cannot be used to create a tax refund.
If the basic rate tax reduction is calculated using the “property business profits” or “adjusted total income”, then the difference between that figure and “finance costs” is carried forward to calculate the basic rate tax reduction in the following years.
