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Deducting interest on buy-to-let mortgages from capital gains

The Tax Administration receives information about mortgages and interest from banks. The information is shown in taxpayers’ pre-completed tax returns. Buy-to-let mortgages are not the same as residential mortgages and are instead treated as income generation loans.

Interest on income generation loans can be deducted from capital gains accrued from buy-to-let properties. Other related costs, such as mortgage fees, can also be deducted.



Make sure that the intended purpose of the loan is entered correctly in your pre-completed tax return.



If the information contained in your pre-completed tax return is incorrect or incomplete, make the necessary corrections in one of the following ways:

You cannot deduct interest from your gross rental income as part of charges and other expenses on Form 7H or 7K.

If you have more interest and expenses than capital income

Interest expenses paid by individuals and estates are primarily deducted from the capital income they have.

If there is not enough capital income to make deductions, there is a deficit. This can occur, for example, if the interest on a loan exceeds the amount of capital income.

Calculating the deficit in the capital-income category:

Capital income
— Expenses for the production of income
— The loss relating to the income source
— Interest expenses
= deficit (if negative)

A credit of 30% of the above is deducted from the income tax on the taxpayer's earned income. The percentage is the same as the tax rate on capital income.

If your tax on earned income is not high enough to deduct the deficit (i.e. to apply a credit) either, you get an allowable loss in the capital-income category. The allowable loss can be carried forward for 10 subsequent years, and you can claim it from whatever capital income you have during those years.

Page last updated 1/2/2020