Can Landlords Still Claim Mortgage Interest?
Yes, landlords can still receive tax relief for mortgage interest. However, the way relief is given depends on how the property is owned and the type of property being let.
For most individual landlords with residential rental properties, mortgage interest is no longer deducted from rental income when calculating taxable property profit.
Instead, the landlord receives a basic rate tax reduction after their Income Tax has been calculated.
This distinction is important because it can increase the amount of rental profit shown on a Self Assessment tax return, even though mortgage interest has been paid.
It can also increase the overall tax bill for landlords who pay higher or additional rate tax.
The short answer
For most individual landlords of residential property:
• Mortgage interest is not deducted from rental income when calculating taxable property profit.
• A basic rate tax reduction is usually available instead.
• For the 2026/27 tax year, the tax reduction is generally calculated at 20%.
• Mortgage capital repayments are never an allowable expense.
For limited companies:
• Interest on qualifying property loans is usually an allowable expense when calculating Corporation Tax profits.
For individual landlords of commercial property:
• Interest on a qualifying loan for a non-residential let is generally deductible when calculating rental profit.
What changed for individual residential landlords?
Before the restriction was introduced, individual landlords could deduct qualifying mortgage interest from rental income in the same way as repairs, insurance or letting agent fees.
That is no longer the position for most personally owned residential properties.
Since 6 April 2020, individual landlords have been required to calculate their rental profit before deducting residential property finance costs.
The mortgage interest is then considered separately as a basic rate tax reduction.
This means that your taxable property profit may be higher than the cash profit you actually receive after paying your mortgage interest.
What counts as a residential property finance cost?
The restriction is not limited to standard mortgage interest.
Relevant finance costs can include:
• Interest on a buy-to-let mortgage.
• Interest on another loan used for the residential rental business.
• Interest on an overdraft used for the residential property business.
• Interest on a loan used to buy furnishings for a residential let.
• Certain fees and incidental costs incurred when obtaining or repaying a mortgage or loan.
• Alternative finance payments in qualifying circumstances.
Mortgage capital repayments are different.
You cannot claim tax relief for the capital part of a mortgage repayment. Only the interest and certain qualifying finance costs may receive relief.
How does the basic rate tax reduction work?
The tax reduction is calculated after your rental income and other taxable income have been considered.
For the 2026/27 tax year, it is generally worth 20% of the lowest of:
• Your qualifying residential property finance costs.
• Your property business profit for the year.
• Your adjusted total income above your Personal Allowance, excluding savings and dividend income.
The reduction cannot create or increase a tax repayment.
Where the relief is restricted because your property profit or adjusted total income is too low, unused finance costs may be carried forward for use in a later tax year.
A simple example
Assume a landlord receives annual rent of £24,000.
They have other allowable property expenses of £4,000 and mortgage interest of £12,000.
Their taxable property profit is calculated as:
• Rental income of £24,000.
• Less other allowable expenses of £4,000.
• Taxable property profit of £20,000.
The £12,000 mortgage interest is not deducted at this stage.
Instead, assuming the full amount qualifies and no other limits apply, the landlord receives a tax reduction of £2,400. This is 20% of the £12,000 finance cost.
The final tax position will depend on the landlord’s full income, tax band, allowances and other reliefs.
Why higher-rate landlords are often affected most
The restriction can be more significant for higher-rate and additional-rate taxpayers.
Under the previous rules, a higher-rate taxpayer could receive relief for qualifying mortgage interest at their marginal Income Tax rate.
Now, the relief is normally limited to the basic rate.
This means a landlord who pays Income Tax at 40% or 45% may receive less tax relief for the same mortgage interest cost than they would have received under the previous system.
The calculation can also increase taxable income for other purposes.
For example, it may affect:
• Whether part of your income falls into a higher tax band.
• Whether your Personal Allowance is reduced.
• Whether the High Income Child Benefit Charge may apply.
• Your overall Self Assessment payments on account.
This is why landlords should not rely solely on the cash left after mortgage payments when estimating their tax bill.
Who is affected by the mortgage interest restriction?
The restriction generally applies to:
• Individual UK resident landlords letting residential properties in the UK or overseas.
• Non-UK resident individuals letting UK residential properties.
• Individual landlords in partnerships.
• Trustees and certain beneficiaries liable to Income Tax on residential property profits.
The rules apply to residential property held personally.
They can also apply where a property business includes both residential and commercial property. In that case, the interest may need to be apportioned on a fair and reasonable basis.
Who is not affected?
The residential finance cost restriction does not normally apply to:
• UK resident companies.
• Non-UK resident companies.
• Individual landlords of non-residential commercial properties.
A limited company can generally deduct qualifying interest on property loans when calculating its Corporation Tax profits.
However, this does not automatically mean that holding property through a company is the right solution.
A company brings separate considerations, including Corporation Tax, dividend tax when profits are extracted, mortgage availability, higher borrowing costs in some cases, Stamp Duty Land Tax implications on a transfer and ongoing company compliance.
For very large companies or groups, the Corporate Interest Restriction may limit interest deductions where net interest and financing costs exceed £2 million in a 12-month period.
What about furnished holiday lets?
The furnished holiday lettings tax regime ended from 6 April 2025 for Income Tax purposes.
Before then, qualifying furnished holiday lets could benefit from different tax treatment, including full deduction of qualifying finance costs for individual landlords.
For the 2025/26 tax year onwards, an individual who continues to let holiday accommodation is generally subject to the same finance cost rules as other individual residential landlords.
This means that mortgage interest relief for former furnished holiday lets is usually restricted to the basic rate.
Can landlords claim interest on a remortgage?
Potentially, but the answer depends on the purpose and amount of borrowing.
Interest may be eligible for relief where the borrowing relates to the property rental business.
However, remortgaging can become more complex where funds are withdrawn for private purposes or where the amount borrowed exceeds what is connected to the rental business.
The fact that a loan is secured against a rental property does not automatically make all the interest eligible for tax relief.
Before claiming interest on a remortgage or further advance, the purpose of the borrowing should be reviewed carefully.
What records should landlords keep?
Good records are essential, particularly where you have remortgaged, own several properties or have a mixture of residential and commercial lets.
Keep:
• Annual mortgage statements showing the interest charged.
• Loan agreements and remortgage documents.
• Statements showing how borrowed funds were used.
• Invoices for mortgage arrangement fees and other qualifying finance costs.
• Rental income records.
• Records of other allowable property expenses.
• Evidence of ownership percentages for jointly owned property.
• A clear record of any finance costs carried forward.
If you are required to follow Making Tax Digital for Income Tax, residential property finance costs must be kept and reported separately from other property expenses.
Common mistakes to avoid
Claiming the full mortgage payment
The capital part of your mortgage repayment is not an allowable expense.
Only qualifying interest and finance costs may receive tax relief.
Deducting mortgage interest from rental income
For most individual residential landlords, mortgage interest is not deducted when calculating taxable rental profit.
It is entered separately so that the tax reduction can be calculated.
Assuming the relief is worth 40% or 45%
For most individual residential landlords, finance cost relief is restricted to the basic rate.
Treating all loan interest as allowable
The purpose of the borrowing matters.
A loan secured against a rental property may still include private borrowing that does not qualify for relief.
Forgetting about former furnished holiday lets
The furnished holiday lettings regime ended from April 2025. Individual landlords should not assume that the previous mortgage interest treatment still applies.
Ignoring the impact on your wider tax position
The higher taxable property profit can affect your tax band, Personal Allowance, Child Benefit position and payments on account.
How PR Accountants Ltd can help
Mortgage interest relief is one of the most misunderstood areas of landlord tax.
The right treatment depends on whether the property is held personally or through a company, whether it is residential or commercial, the purpose of the loan and your wider personal tax position.
PR Accountants Ltd helps landlords with rental accounts, Self Assessment tax returns, mortgage interest calculations, property tax planning and limited company advice.
Contact us for clear guidance on your rental income, allowable expenses and likely tax position.
Related articles
• What Expenses Can Landlords Claim?
• Should You Hold Rental Property Personally or Through a Limited Company?
• Payments on Account Explained for Self Assessment
• Self Assessment for Landlords: What Income Needs Reporting?