How diminishing interest deductibility may impact your investment property

Haven Accounting | 2 MIN READ April 21, 2023

Changes to tax law have been implemented regarding interest deductibility for residential investment properties. Under the new rules, there’s diminishing ability to claim interest on loans used to finance residential investment properties. Unless the property is classified as a “new build” (received a Code Compliance Certificate after 27th March 2020) who’re exempt from the new rules. 

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For property acquired before 27 March 2021, the changes are being phased in over a four-year period, starting from April 2021 and taking full effect in April 2025. The rules are phased in as follows: 

  • From 1 October 2021 to 31 March 2023 the percent of interest you can claim is 75%
  • From 1 April 2023 to 31 March 2024 the percent of interest you can claim is 50%
  • From 1 April 2024 to 31 March 2025 the percent of interest you can claim is 25%
  • From 1 April 2025 onwards you can’t claim any interest

Under the interest denial rules, no interest can be claimed from 1 October 2021 for residential property purchased on or after 27 March 2021.

So what might that mean for your investment property? 

If you were previously able to fully deduct interest expenses on your investment property loans, the change will result in reduced tax deductions, leading to higher taxable income. With reduced tax deductions, your net rental income from an investment property will decrease due to paying more tax, which along with rising interest rates could be substantial on the cashflow of an investment property.

The changes in tax law may impact your investment strategy going forward including any future investments or ongoing management of your existing property portfolio. As well as, possible impacts on wider market dynamics, including property prices, demand for investment properties and rental incomes. 

How can Haven Accounting help? 

At Haven Accounting, we can help you assess how the tax law changes will impact your existing investment properties that you are planning to retain or purchase. So, if you currently invest in property or are planning to, get in touch with the Haven team before you make your next move.


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