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Scrambled again

Landlords are paying more tax largely as a result of frozen income tax allowances and thresholds, and the scrapping of tax relief on mortgage interest payments. Landlords used to be able to deduct 100pc of mortgage interest from their rental income when calculating profits. Now, they only get a 20pc tax credit.

Eh? I thought you could still claim 100% of interest costs, but only at a rate of 20%?

Are the Telegraph business pages now going to way of The Guardian opinion columns?

3 thoughts on “Scrambled again”

  1. Not quite the same thing. You can no longer deduct interest costs from income before calculating tax due. So you might be pushed into a high tax band by the income. Then you get a 20pc tax credit.
    As a silly example if you earned £50270 from a job (all the 20% zone) and then £10,000 in rent from a rental on which you pay £10,000 interest. You are assessed as having income of £60250, tax due on that. That extra £10k of rent counted as income means £4k more tax. The tax credit of £2000 on the interest offsets half of that.

    In this example oning a buy to let and breaking even on it costs you £2k in after tax income.

  2. It’s all so confusing that I sped up paying off my mortgage on my shop-with-a-flat before it came in, just to get rid of the mess it would cause.

  3. Some bloke on't t'internet

    As Swannypol says, you get taxed on the gross (though other expenses such as repairs, insurance, etc., are still allowed as a deduction in calculating the BTL profits) and then after everything is totted up, they allow a 20pc credit against your total tax bill for mortgage interest. Quite literally, there’s a new line right at the bottom of your tax calculation – after all the taxable income stuff, tax due, tax already paid (e.g. by PAYE), balance now due, and then a 20% credit against BTL mortgage interest.
    “Luckily” (if you can call it that) as a lowly paid civil servant I’m nowhere near the higher rate tax band either way so it’s not actually affected me. But I suspect there are a few who have found themselves effectively paying a >100% marginal tax rate on their BTL properties.
    Outside of Greece, I don’t know of any location or industry that’s taxed on turnover rather than profits (even if the profits are negative).

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