Tax Relief on Mortgages

Interest paid in any tax year on a loan for the purpose of buying, improving, or extending one's home, from whatever source the loan is obtained, is allowable as a deduction from total income before assessment to income tax. The effect of this is to give relief at the top rate of tax paid (`marginal' rate) on the amount of interest paid on house mortgages.

There are certain limitations to this relief. First, it is restricted (up to 2016/81) to interest on a total borrowing of £25,000, no relief being available on interest paid on borrowing over this limit. Second, it is available only on the borrowing on your main residence, not on a second home. If you have a mortgage of £10,000 on your main residence and £8,000 on your holiday home, for instance, you can claim tax relief only on the £10,000 mortgage interest. However, when you are moving house and you take out a mortgage on the new home before paying off the mortgage on the old one, the Inland Revenue will allow tax relief on both mortgages for up to 12 months, providing the old home is vacant and on the market. In such a case your relief is still restricted to interest on a total borrowing of £25,000.

Repayment mortgages

The majority of home buyers elect to repay their mortgage loans by the annuity method, commonly called the 'repayment method'. This provides for the borrower to make regular monthly repayment instalments such that, over the life of the mortgage, the debt, together with interest, is repaid entirely.


Mortgage Interest

The interest rate charged on a building society mortgage is a variable one, not fixed as with a bank personal loan, for instance. This means that the rate can be lowered or raised during the term of the mortgage. The rate has to be variable because the rates of interest allowed to society investors are variable. Both rates have to change from time to time to keep them broadly in line with the general level of interest rates in the market.

Setting the rate

Most societies adopt for their basic mortgage rate the rate recommended by the Building Societies Association. But societies... see: Mortgage Interest


Refunds, Personal And Business Finance 2017

  • You can send us an email if you want to know more about waht we do and we will get back to you as soon as we are able.

  • Want to be a published author
    We publish articles on this site if they fulfil our requirments. more>>