Controversy over mortgage interest deduction

A critical article was published in the free tabloid newspaper the Metro yesterday, claiming that Landlords across the country are enjoying a £2bn ‘subsidy’ from the taxpayer which is ‘shackling’ first time buyers. The situation surrounding the way in which landlords pay their tax is often misunderstood, and these claims have brought controversy to the buy-to-let market, but how should landlords and tenants make sense of them?

Interest Deductions from Income Tax

As most landlords will know, a mortgage is a business expense which is directly and specifically tied to a particular property. Without this mortgage, most landlords would be unable to carry on their trade of letting property. Therefore, HMRC allows landlords to deduct the expenses of this mortgage – that is the interest payments – from any taxable income.

Deductions are not Subsidies

These principles are the basis of the UK tax system and they ensure that landlords are taxed upon only their profits, rather than being unfairly taxed on expenditure or, worse still, losses. All businesses deduct expenses in this way, and similar deductions are available for landlords who make like-for-like repairs, pay for landlord insurance or legal fees.

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A Sign of Things to Come?

However, the article does point out that severe cuts have been made to the housing benefit scheme this year, and it could well be that buy-to-let landlords will see some changes in the future. It’s not likely that interest deductions will ever be scrapped but it is possible that other reliefs could well come to an end.

In a difficult economic climate, all areas of businesses come under pressure and governments and taxpayers start very carefully counting their pennies. However, mortgage interest deductions are a legitimate expense of the trade and without them, many landlords would struggle very hard to let property at all.

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