Please Note: This Article is 8 years old. This increases the likelihood that some or all of it's content is now outdated.

Most people enter the buy to let market as investors, as a business opportunity. This might be to build an investment portfolio, either to generate income or to build a nest-egg for the future. But rent that buy to let investors receive generates an income. Traditionally, the interest element of the mortgage (usually the largest part) is allowed to be counted as a business expense, so it is non-taxable. Although the capital that you pay on the mortgage is not tax-deductible, the interest element can be a significant monthly outlay of any mortgage.

The total value of this tax exemption was estimated to be around £5 billion in 2012, according to information gained via a Freedom of Information request. According to HMRC, about one million landlords took advantage of this scheme. This is in addition to £7 billion of other tax-deductible costs, such as repairs, lettings fees and insurance, which around 2.2 million landlords used in 2012.

Is mortgage interest a business expense?

Because many landlords are running a mini-business through their properties, then there is no reason why there should be any difference in this tax-exemption than with other expenses. But some people have criticised the ability to avoid paying tax on the interest of mortgages for buy to let properties. Tax breaks on single occupier mortgages were scrapped almost a decade ago, and some people have claimed that the continuation of this exemption in the buy to let market has allowed landlords to spend more on properties, pricing first time buyers, or owner-occupiers, out of the market.

Would scrapping mortgage interest relief affect the economy

There is a problem, however, if these tax breaks are scrapped, which is what appeared to be likely before the autumn statement. There was speculation that the total sum of the relief was higher than the benefit of keeping the scheme in place. Many people are unable to afford to buy a property to live in, since lending criteria was strengthened after the 2008 economic crisis. This has seen a surge in demand for affordable rental properties. If the tax exemption on the interest component of mortgages was scrapped, then a landlord’s costs would go up. In turn, the rent for tenants would probably have to go up. Although the Government might make some money because they would gain extra capital on the interest rates on buy to let mortgage, especially if those interest rates went up, it is likely that they would need to make some sort of potentially expensive provisions for ‘generation rent’ who, having been priced out of the housing market, might now be priced out of the rental market.

Bricks and mortar has always been deemed to be a sound investment, but if the costs associated with it- through paying tax on the interest element of a mortgage, for example- went up, then buy to let landlords might exit the sector. This could potentially strip the housing market of much-needed investment, as well as making it difficult for people to find affordable homes to rent, at precisely the same time when they cannot afford to buy their own homes. The additional costs associated with the removal of tax deduction on the interest element of mortgages means that, if interest rates rise from their exceptionally low recent rates, then rental market might find itself out-pricing its customers.

More legislation for the rental market

Over the recent years there has been a large increase in the amount of government legislation put in place on the rental industry, and as the sector continues to grow it is essential that landlords keep themselves up to date with the current rules and regulation as there have been a growing number of cases of private landlords receiving large penalty fines for not doing so, and judges do not accept either argument that the landlord was unaware or the updated legislation or that they believed their letting agent was responsible – ultimately it is the landlord who is responsible even if they have a managing agent acting on their behalf. Legal 4 Landlords, one of the UK’s largest provider to the lettings industry operate a free landlord advice telephone lines for both private landlords and letting agents unsure on their legal obligations.

Please Note: This Article is 8 years old. This increases the likelihood that some or all of it's content is now outdated.


  1. The pricing of owner-occupied mortgages (typically 2.5-3.0% above base) is over a third cheaper than BTL mortgages (typically 4.5-5.0% above base). When tax relief is claimed against rent, the net mortgage cost is no lower than the owner-occupier is paying.

  2. I\’m exiting the market now because I can\’t remortgage at a reasonable percentage not to mention astronomical fees on buy to let mortgages. People like myself don\’t become landlords because they desire to necessarily, we just rent out our previous properties we couldn\’t sell before because of the property crash.

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