As is the world of Tax, change is unavoidable.

Rates, Bands, Percentages to name a few are a constant merry go round and can leave many with their head in a spin.

HMRC never sits still and one recent change has left clients with a few unanswered questions.

As at the time of posting we are currently in full swing of the new finance interest relief for residential landlords. This has dramatically adjusted the way in which mortgage interest, loan interest and overdraft interest expense can be relieved.

Over a period of 4 years the offset of finance interest against rental income will be abolished, but its not all doom and gloom as this interest can reclaimed as a 20% tax credit.


Tax YearAllowable Deduction from IncomeAmount for 20% Tax Credit
2017 – 201875%25%
2018 – 201950%50%
2019 – 202025%75%
2020 Onwards0%100%


‘So what’s the difference?’ many have asked.

For some this change will have no effect on their personal tax bill which is great but for the rest this will certainly lead to an increase. There are two ways in which this new change will affect individuals.

  • Previously the taxable income declared on the tax return was the total income less any allowable expenses including mortgage interest. Now however with the re-allocation of finance interest an individual’s taxable income will increase which may potentially push their income into the next tax bracket. Or may possibly affect child benefit payments should it cause taxable income to exceed the £50,000 threshold.


  • The second more obvious disadvantage is the loss of higher tax deduction. A higher rate tax payer would previously receive a 40% tax saving on all allowable deductions against their income by effectively reducing the taxable income on which they pay 40% tax on. Now they will only receive a 20% saving.


It is important to note that individuals that remain a basic rate tax payer will see no change in their liability as the tax credit amounts to their usual rate of tax.

Also, a company will continue to be able to claim as usual. Individuals should be wary of forming a company and seek further advice before proceeding as the change of ownership may be liable to Stamp Duty Land Tax as well as other personal tax complications and additional admin burden which may not warrant the saving.

Please find below a little example to demonstrate the new rules as a comparison to the old rules.


John Smith has a rental property in which he has regularly earned £12,000 a year and paid mortgage interest annually of £1,200. He has no other expenses.

John is also a Health and Safety Officer earning £40,000 a year.


Old RulesNew Rules (2020)
Self – Employed Income40,00040,000
Rental Income10,80012,000
Total Income50,80052,000
Personal Allowance(11,500)(11,500)
Taxable Income39,30040,500
Tax Payable 20%69006900
Tax Payable 40%19202400
Total Tax Liability88209300
Finance Cost Tax Credit(240)
Total Tax Payable88209060


As is demonstrated using the same figures under different rules has caused an increase in the total tax payable.

Further information can be found at:

Get in touch if you require any further information.

This blog is for information purposes only and D.H. Tuck & Co Limited cannot be liable for any decisions made based on the information published. Processes were correct as at the time of posting. Always seek professional advice when dealing with tax affairs.