Allow mortgage interest to be treated as a deductible business expense when calculating taxable rental income, in line with standard UK business taxation principles and generally accepted accounting practice, helping support stable rental supply and avoid upward pressure on rents.
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Current rules tax rental income before mortgage interest costs, with only a basic-rate credit applied afterwards. This can result in tax being charged on income not received in real cash terms. Most UK businesses can deduct financing costs when calculating taxable profit. The current approach for rental businesses departs from this principle and can discourage investment and reduce the supply of compliant rental homes, particularly where costs are rising.