HMRC tax

Maximising mortgage interest tax relief for landlords

As landlords continue to get to grips with the rollout of mortgage tax relief changes as a result of new Section 24 tax rules, some lenders are offering a helping hand to minimise the effects.

Up until recently, landlords have had a major tax advantage, only having to declare rental income after their buy-to-let mortgage has been paid. Since April 2017, the way rental income is declared has changed, resulting in significant tax implications for landlords. The outlook for landlords’ tax bills has been gloomy, but one building society has introduced a new product that offers some short-term respite.

Mortgage interest tax relief is set to reduce each year until April 2020; this year landlords will be able to claim 50% of their mortgage tax relief. In the 2019/20 financial year, this will reduce to 25%, before the introduction of the new tax credit in April 2020 when they will no longer be able to deduct any mortgage expenses from rental income.

Maximising tax relief for 2018/19

Leeds Building Society has launched a new mortgage product specifically designed to help landlords maximise their tax relief this year. Buy-to-let mortgages with inflated fees to compensate for lower rates have been added to their product portfolio; two-year fixed-rate mortgages with a £2,499 upfront fee, with rates of 1.44% at 60% loan to value (LTV) and 1.69% at 70% LTV. Both products come with free standard valuation and fees assisted legal service.

Leeds Building Society’s director of product and distribution, Jaedon Green, said: “The underlying economics of buy-to-let are changing as the government’s tax changes start to bite. Fixed rate products continue to look attractive, offering certainty over funding costs, but the gradual introduction of the tax changes and tapering off of tax relief potentially creates opportunities. The society has recently strengthened its dedicated buy-to-let mortgage underwriting team to further enhance the application process, as well as simplifying its criteria for this form of lending.”

Short-term respite

These deals are designed specifically to minimise the interest payable next year. According to the lender, these fixed-rate products will enable landlords to front-load funding costs and maximise mortgage interest tax relief. Whilst this is only a short-term benefit, it does offer landlords some breathing space to review their long-term financial plans.

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