Investing in a buy-to-let property can be a lucrative venture, offering long-term rental income and potential capital appreciation for those looking to invest their money somewhere. However, landlords must also consider the financial responsibilities, including tax implications. One of the most significant aspects of taxation on rental properties in the UK is buy-to-let mortgage tax relief.
In this blog, I will explore the idea of mortgage interest relief for landlords, changes in tax relief on buy-to-let mortgages, and whether buy-to-let properties remain a viable investment in 2025. Please note that while we are qualified mortgage advisors, and while this article provides an overview of landlord mortgage tax relief, it does not constitute tax advice. We strongly recommend consulting a qualified tax professional for tailored guidance.
What Is a Buy-To-Let Mortgage?
Let’s start with the basics so that everyone reading is on the same page. A buy-to-let mortgage is a type of loan specifically designed for individuals who want to purchase a property to rent out rather than live in. Unlike residential mortgages, buy-to-let mortgages typically require a higher deposit, have different lending criteria, and often come with higher interest rates.
Key Features of Buy-To-Let Mortgages:
- Larger deposit requirements (usually 25% or more)
- Interest-only repayment options (not exclusive to buy-to-let investment, but most common here)
- Higher interest rates than residential mortgages (generally interest rates with buy-to-lets are higher than residential mortgages)
- Rental income considerations in affordability assessments (The rent you already receive or will potentially receive can often be included in affordability checks)
What Is Buy-To-Let Mortgage Tax Relief?
Buy-to-let mortgage tax relief refers to the tax deduction landlords used to receive on mortgage interest payments. Historically, landlords could deduct mortgage interest from their rental income before calculating tax liability. However, changes introduced between 2017 and 2020 have altered how landlords claim mortgage tax relief.
Instead of deducting mortgage interest directly from rental income, landlords now receive a 20% tax credit on mortgage interest costs. This adjustment particularly affects higher-rate taxpayers, as they previously benefited from tax relief at 40% or 45%.
Changes to Mortgage Interest Relief for Landlords
The phasing out of the old system and introduction of the new buy-to-let mortgage interest tax relief system means:
- Landlords can no longer deduct mortgage interest directly from rental income.
Instead, they receive a 20% tax credit on their mortgage interest payments. This change impacts higher and additional rate taxpayers the most.
For example, if a landlord previously paid £10,000 in mortgage interest and was in the 40% tax bracket, they could deduct the full amount from their rental income, reducing their tax bill by £4,000. Under the new system, they only receive a basic rate tax credit of £2,000 (£10,000 x 20%), meaning their overall tax liability is higher.
How Does Buy-To-Let Mortgage Interest Tax Relief Work in 2025?
As of 2025, the tax relief on mortgage interest on rented property remains a basic rate tax credit of 20%. Landlords must calculate their rental income, deduct allowable expenses, and then apply the tax credit against their tax bill. Here is an overview of the process:
- Calculate Total Rental Income – Add up all rent received over the tax year.
- Deduct Allowable Expenses – This includes property management fees, maintenance costs, and insurance but not mortgage interest.
- Determine Taxable Income – The net amount is taxed at the landlord’s personal tax rate.
- Apply 20% Tax Credit – Mortgage interest payments are eligible for a 20% tax credit deduction
The Impact of Landlord Mortgage Tax Relief Changes
So, who benefits?
Basic Rate Taxpayers: Since the 20% tax credit matches the basic income tax rate, basic rate taxpayers experience minimal impact.
Higher and Additional Rate Taxpayers: Those in the 40% or 45% tax brackets now pay more tax, as the old deduction method allowed them to claim relief at their full tax rate.
Potential Challenges for Landlords
There are of course lots of challenges facing landlord in 2025. To name a few, increased taxable income could push landlords into a higher tax bracket. Some landlords may struggle with reduced profitability due to higher tax liabilities. There is limited mortgage relief for landlords which may lead to higher rental prices as costs are passed on to tenants.
Is Buy-To-Let Still a Profitable Investment in 2025?
Despite tax relief changes, buy-to-let properties remain a popular investment option in the UK. Here’s why:
- Steady Rental Demand
The UK rental market remains strong, with increasing demand from tenants. Factors such as population growth, rising property prices, and changes in homeownership trends contribute to sustained demand for rental properties.
- Capital Appreciation Potential
Property values in the UK have historically risen over time. While short-term fluctuations occur, long-term investors can benefit from significant capital growth.
- Tax-Efficient Ownership Strategies
Many landlords are restructuring their property portfolios to mitigate tax impacts. Strategies include:
Incorporating as a Limited Company: Corporation tax rates may be lower than personal income tax rates, offering potential tax savings.
Using Spouse or Partner Allowances: Transferring ownership to a lower-income partner to benefit from reduced tax rates.
Offsetting Other Allowable Expenses: Maximising deductible expenses like maintenance, insurance, and professional fees.
- Diversification & Long-Term Investment Security
Property investment is often seen as a stable, long-term asset that can provide financial security, particularly when diversified across multiple properties or locations.
How Landlords Can Get On Top Of Mortgage Tax Relief Changes
While mortgage relief on buy-to-let has changed, landlords can take steps to adapt:
- Consult a Tax Professional – Tax rules can be complex, and personalised advice is essential.
- Review Portfolio Strategy – Assess whether restructuring into a limited company or other tax-efficient structures is beneficial.
- Increase Rental Yield – Optimise rental prices while maintaining occupancy rates.
- Consider Remortgaging – Look for competitive interest rates to reduce mortgage costs with a qualified professional mortgage advisor.
- Leverage Allowable Deductions – Maximise other deductible expenses to lower taxable income.
Speak To A Tax Specialist As Well As A Mortgage Advisor
The tax relief on mortgage interest on rented property has evolved significantly, affecting the way landlords manage their investments. While the transition to a 20% tax credit has reduced benefits for higher-rate taxpayers, buy-to-let remains a strong investment option in 2025. Understanding landlord tax relief on mortgage interest is essential for property investors looking to maximise profitability while staying compliant with UK tax regulations. However, as tax laws can be complex, we strongly advise seeking professional guidance from a qualified tax advisor before making any tax based decisions.
When it comes to arranging a buy-to-let mortgage, our specialist buy-to-let mortgage advisors are here to help and guide you. Call our team today or drop us a message to see how we can help out.
Disclaimer: This article is for informational purposes only and does not constitute tax advice. Always consult with a qualified tax professional before making financial decisions regarding your property investments.
