Tax Changes For Expat Landlords

Landlords, or those who rent out a property in the UK while living overseas, have tended to enjoy certain tax breaks when it comes to rental profits. If you have a property which you rent out, or plan to rent out in the future, it is worth being aware of some upcoming changes to the rules.


By Adam Thompson


As things currently stand you are able to deduct any mortgage interest which has been paid in a given tax year from your rental profits for that same year. The new rules mean these deductions will no longer be allowed. The upshot of this is that your rental profit and overall taxable income will be effectively increased by the amount of mortgage interest you are paying.

Tax relief will instead be given as a ‘tax reducer’ at the basic rate of tax of 20%. So, if you paid mortgage interest of £10,000 in a tax year, you would receive a tax credit of £2,000 to deduct from your overall tax liability. This will clearly represent a big difference if you are paying tax at 45%, as you would have previously received effective tax relief of £4,500 on the same mortgage interest.

The rules will only affect residential property, commercial property is outside of the scope of this new legislation.

The biggest losers will be those with high incomes and large mortgages on their rental properties, but if you are a basic rate taxpayer, close to the higher rate threshold, you may find the new rules tip you into the higher rate tax bracket. For those of you already in the higher or additional rates, it is likely that you will see a hefty hike in your tax liability arising from your rental income.

The changes are being phased in from April 2017. So in the 2017/18 tax year, 75% of your mortgage interest can be offset against rental profit, with the remaining 25% being allowed as a tax reducer at the basic rate of 20%.

In the 2018/19 tax year, the split will be 50:50, in 2019/20 it will be 25:75 and from 2020/21 the full effect will be felt and you will only receive relief on mortgage interest at 20%.


Adam Thompson is Tax Manager at The Fry Group


Please note that the above should not be considered as tax or financial advice, it is general guidance only and should not be relied upon.  If you would like advice specific to your own circumstances, please do not hesitate to contact me.