Most tax effective way of dealing with rental property

Assuming rental income of 9,600 per year on the higher rate of tax, and in the fortunate position of being able to fully repay mortgage by cashing Post Office Certs, I'm trying to decide if having a mortgage is more tax effective than being mortgage-free. The following figures are based on Karl’s Mortgage Calculator:

Option A - Mortgage amount 170K, over 19 years with an interest rate of 3.70%.
Monthly mortgage repayment €1039, or €12468 per year.
75% of interest is €4713 per year.

Option B - Mortgage amount 61K, over 19 years with an interest rate of 3.70%.
Monthly mortgage repayment €373, or €4473 per year.
75% of interest is €1664 per year.

Repayment difference between option A and option B is (12468 – 4473 = €7995.

Assuming no capital allowances or expenses and being taxed at 52%, taxable amounts are:

Option A: (9600 – 4713) x 52% = €2541

Option B: (9600 – 1664) x 52% = €4127

Based on the above figures, am I correct that it’s best to reduce the mortgage to a minimum, or am I missing something?
Thanks in advance.
Eddie

PS Just realised that I should have posted this in the Property Investment forum but I'm not able to move it now. Apologies

As I haven't had a reply I'm assuming that the calculations are correct and that the tax system is biased against prudent landlords who want to pay off their debts because 52% of rental income will go to revenue. The government appears to make it more attractive for landlords not to pay off their mortgages. I'm tempted to re-mortgage and head on holiday

The old story is it better to pay an expense because it's tax deductible!

You have to pay 100% to save 75% x 52% = 38%. So the question is can you get a better return with your money than the after tax cost of the interest.

If you remortgage to go on holidays you can't claim the interest as a rental deduction as it money was not borrows to acquire an interest in the property!

Thanks for your reply Joe. So maybe it's better to re-decorate the property and write off the expenses? This is probably more tax-effective for those who bought property investment pre 31 Dec 2014 CGT deadline.

I updated the title as people just assume your query was about how to pay tax on rental income which comes up here a lot.