Landlord Mortgage Interest Tax Relief: UK 2026/27 Guide

Individual landlords of residential property generally cannot deduct mortgage interest in full from rental income. Qualifying finance costs instead receive a basic-rate tax reduction, usually 20%, subject to limits. Companies and some non-residential property businesses follow different rules.

What changed under Section 24?

The restriction was phased in from April 2017 and has applied fully since 2020/21. An individual calculates property profit before residential finance costs, then claims a tax reduction based on the lowest of:

• qualifying finance costs for the year plus eligible amounts brought forward;
• property business profits after losses;
• adjusted total income above the Personal Allowance.

Unused qualifying finance costs can generally carry forward to a later year of the same property business.

Which costs can qualify?

• mortgage and loan interest relating to residential letting;
• interest on borrowing used to buy, improve or repair the property;
• fees and incidental costs of obtaining or repaying finance;
• interest on alternative security where the borrowing is genuinely for the property business.

Capital repayments, private borrowing and penalties do not qualify as interest. The purpose and use of borrowed funds matter more than which property secures the loan.

Worked example

An English landlord has £18,000 rent, £4,000 allowable non-finance expenses and £8,000 mortgage interest. Property profit before finance costs is £14,000. The potential tax reduction is £1,600 (20% of £8,000), subject to the statutory limits.

If the landlord is a higher-rate taxpayer, Income Tax on the £14,000 property profit can be 40% before the credit, so Section 24 can produce a higher effective tax cost than a full expense deduction.

Why taxable profit can exceed cash profit

Cash profit after interest in the example is £6,000, while taxable property profit is £14,000 before the tax reducer. This can push adjusted net income into:

• higher or additional-rate tax;
• Personal Allowance tapering above £100,000;
• High Income Child Benefit Charge;
• reduced pension annual allowance in relevant cases;
• other income-based thresholds.

What about commercial property?

The residential finance-cost restriction does not generally apply in the same way to loans for commercial property. Interest may be deductible under the ordinary property-business rules, subject to purpose, capital and anti-avoidance provisions.

Limited-company landlords

A company generally calculates taxable rental profit under Corporation Tax rules and can often deduct interest as a non-trading loan relationship debit. Corporate-interest restriction, unallowable purpose and connected-party rules can apply.

Moving existing property to a company is a disposal for CGT and can trigger Stamp Duty Land Tax based on market value or debt rules. It is not merely an administrative way to regain interest relief.

Joint owners

Each owner claims their share according to the taxable property-income split. Married couples and civil partners living together are normally taxed equally on jointly held property unless beneficial ownership differs and a valid declaration is made.

Remortgaging and withdrawing capital

Interest can remain allowable where refinancing replaces capital originally used in the property business, generally up to the value of the property when first introduced to the business. Borrowing beyond business capital or used personally can be restricted. Maintain a clear tracing schedule.

Repairs and improvements funded by a loan

The interest treatment is separate from the cost funded. Interest on borrowing for a qualifying repair may enter the finance-cost calculation, while the repair itself can be a revenue expense. A capital extension is not a revenue expense, though its financing cost may still be considered under the relevant interest rules.

Cash basis

Most individual landlords with receipts up to £150,000 use cash basis by default, but the residential finance-cost restriction still applies. Cash basis does not restore a full mortgage-interest deduction.

See landlord cash-basis accounting.

Records to retain

• loan agreements and annual interest certificates;
• completion statements and deposit evidence;
• bank statements tracing use of funds;
• refinancing and valuation documents;
• allocations between residential, commercial and private use;
• carried-forward finance-cost schedules;
• ownership and income-split evidence.

Common mistakes

• deducting mortgage payments including capital;
• claiming a full expense and the 20% tax reduction;
• assuming security on the rental property proves business use;
• losing carried-forward finance costs;
• ignoring the impact on adjusted net income;
• incorporating without modelling CGT, SDLT and finance costs.

Official guidance

• HMRC: residential landlord finance-cost relief
• HMRC Property Income Manual: interest

This guide is general information. Refinancing, incorporation and mixed-use borrowing need tailored advice.