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What are the Tax Implications of Making Overpayments to My Mortgage?

Question I would like to know what the tax implications are on making regular overpayments and/or ‘lump sum’ overpayments to pay off the capital on a ‘buy to let’ interest only mortgage.

Will I have to pay extra tax using this method if I were to use the ‘excess monthly rent’ as monthly overpayments once the monthly mortgage has been paid?

Arthur Weller Replies:
The answer to your question is very simple. Any interest payment you make to your mortgage lender is an allowable expense that can be offset against your gross rental income for calculating income tax.

Any capital repayment you make is not an allowable expense, and so cannot be offset against the gross rental income. Your mortgage lender should be able to tell you which payments you make are classified as interest payments and which are classified as capital repayments.


Property Tax Insider This sample question and answer is taken from Property Tax Insider, a monthly UK tax saving magazine for landlords and property investors.

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