Understanding the Mortgage Interest Expense Claim
When it comes to tax planning and deductions, home ownership can offer a range of benefits. One such benefit is the ability to claim mortgage interest as an expense. But can you do this in the UK? The answer is yes, but it depends on certain conditions. This blog post will delve into the specifics of claiming mortgage interest as an expense, the limitations, and how to go about it.
When Can You Claim Mortgage Interest as an Expense?
In the UK, you can claim mortgage interest as an expense if your property is let out. According to the Her Majesty’s Revenue and Customs (HMRC), this is considered a finance cost and can be deducted from your property income.
However, it’s important to note that this doesn’t apply to homeowners who live in their property and don’t rent it out. Mortgage interest is a private expense and can’t be claimed against your income, as per HMRC guidelines.
Changes in Mortgage Interest Relief
In the past, landlords could deduct 100% of their mortgage interest from their taxable income. However, this changed in April 2020 with the phasing out of mortgage interest relief.
Since April 2020, landlords can only claim a tax credit, equivalent to 20% of their mortgage interest costs. This tax credit is deducted from the final tax bill, rather than reducing taxable income.
How to Claim Mortgage Interest as an Expense
The process of claiming mortgage interest as an expense involves a few steps.
- First, you need to calculate your total property income. This includes rent received and any other income related to the property.
- Then, you need to calculate your total allowable expenses. These are costs incurred in the day-to-day running of the property, such as maintenance and repairs, insurance, and mortgage interest.
- Subtract your total allowable expenses from your total property income. This gives you your taxable profit.
- Next, calculate your tax bill based on your taxable profit and tax rate.
- Finally, subtract the mortgage interest tax credit (20% of your mortgage interest) from your tax bill to get your final tax payable.
Remember to keep all relevant documents and receipts, as HMRC may request these to verify your claim.
Conclusion
Claiming mortgage interest as an expense can be a significant tax advantage for landlords. However, it’s crucial to stay updated with HMRC rules and regulations, which can change over time. If you’re unsure about any aspect of this process, it’s advisable to consult with a tax advisor or accountant.
