How to Reduce Tax on Rental Income?
On a buy to let mortgage you get tax relief on the interest on this mortgage and not on the capital repayment part.
With a repayment mortgage, the interest element decreases over the period of the loan as more of the mortgage is repaid. This means the amount of interest you can offset against your rental income decreases and your tax bill rises.
The solution may be to take out an interest only mortgage…
- Repayments would be less each month and the mortgage would not reduce so the interest would remain high.
- The saving on the lower mortgage payments can be added to the repayments on say your normal home mortgage and so repay this off quicker instead.
By organising your mortgage in this way, you ensure your tax on the rental income is minimised. What you are doing is paying less interest on your residential mortgage which is not tax deducible and more interest on your buy to let mortgage which is!
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