Buy to Let Offset Mortgage

Buy to Let Offset Mortgage

Many buy to let landlords will be aware of the changes to how much tax relief can be claimed on financing charges (mortgage and loans) for buy to let investment property that started in April 2017 was being gradually phased in over the next 3 years until 2020.

Firstly, the amount of Income Tax relief some landlords can get on residential property finance costs have been restricted to the basic rate of tax from 6 April 2017.  This was gradually phased in from April 2017 through to April 2020. 

So in tax year 2016 to 2017, all of your finance costs could be offset against profits and if you are a higher rate or additional rate tax payer, tax relief was effectively given up to 40%/45%.  This has now changed meaning that in 2017-2018 75% of your finance costs was offset against full tax liability and 25% of your finance costs wasrestricted to 20% relief.  So for basic rate tax payers there is no change but for higher rate tax payers and above there was a significant change over the last few years.  Right now, after the transition, all finance expenses are restricted to 20% relief with 20% tax credit.

In another article, we have covered the option of a Joint Borrower Sole Proprietor Buy to Let Mortgage, we look at the Buy to Let Offset Mortgage

Buy to Let Offset Mortgage

Many landlords and mortgage lenders are looking for ways to protect from these mortgage expenses tax relief changes.

There are now a number of lenders that can offer ‘buy to let offset mortgages’.

What is an offset mortgage?  Originally from Australia, these types of mortgage work by you having a normal mortgage with interest charged and then having a linked savings account.  You receive zero interest on your savings in the account, but the likewise no interest is charged on your mortgage account for the loan amount equivalent to the savings.  In effect, you pay reduced interest.  These mortgages have proved extremely popular over the past few years given that having cash savings in other accounts such as Cash ISAs earning low interest, it is potentially better as you have your cash savings reserve in the mortgage offset account to ‘dip into’ yet, whilst funds are still in there you are saving on reduced mortgage interest payments.

This is potentially good for buy to let investors given the changes to finance expenses relief and a number of buy to let lenders now offer Buy to let offset mortgages.  For more advice on buy to let mortgages please contact us.

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