Mortgage interest relief?

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    Mortgage interest relief?

    Can someone here please explain to me how the new changes to mortgage interest relief work?
    If I receive rent of 9000 a year and my mortgage interest is 5000 a year then I would expect to be taxed on 4000, which at 20% would be 800 a year. (Ignoring any other deductions).
    Is this still correct or has this changed?
    Thanks

    #2
    They're being phased in over the next four years, but the end position will be:
    You'll be taxed on the £9,000 income at your normal rate of tax.
    You'll be able to deduct from the tax due an allowance of 20% of the interest (whatever rate of tax you pay).

    Today:
    rent is £9000
    interest is £5000
    you pay tax on £4000 (so £800 for a base rate payer or £1600 for a higher rate payer).

    Future:
    rent is £9000
    interest is £5000
    you pay tax on £9000 (so £1800 for a base rate payer or £3600 for a higher rate payer).
    less an allowance of £1000 (so end result of £800 for a base rate payer or £2600 for a higher rate payer.)

    The messy bit is if the £9000 income takes you into being a higher rate tax payer, because that can happen.
    Which also moves you into a higher band for CGT.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Thanks the the explanation. As I am a standard tax payer it makes no difference to me. I assume those with several properties will be pushed into the higher tax payer band and will see them paying more tax?? Is this likely to mean some people selling up?

      Comment


        #4
        I have 7 properties let but it won't push me into the higher tax band by itself.

        In 2019 I can take some pensions without penalty and the combination would so I intend to see a former home (reduced CGT) and pay down mortgages with the proceeds.

        Comment


          #5
          Aren't the pensions being taken tax free?
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            Originally posted by jpkeates View Post
            Aren't the pensions being taken tax free?
            Wish they were: I pay tax on my various pensions, including state pension...or were you referring to payment to a pension fund??
            I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

            Comment


              #7
              I was referring to the 25% tax free sun that can be taken.
              Usually taking anything else can be punitive...
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Originally posted by landlord2b View Post
                Thanks the the explanation. As I am a standard tax payer it makes no difference to me. I assume those with several properties will be pushed into the higher tax payer band and will see them paying more tax?? Is this likely to mean some people selling up?
                Hello. I think there will be consequences. I sold two units myself.

                There are other consequences - Cost of debt. Leverage ratios. Rent rises. The main thing is: It will be more difficult to buy property.

                I put a lot of effort into writing this on out of hours. People have found it quite useful to understand the mechanics and wider impacts:

                http://www.comfortlettings.co.uk/blo...x-consequences
                I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

                That also means I cannot share in any profits from any decisions made!

                Comment

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