When you work from home or invest in property, you will naturally ask: can I expense my mortgage? HMRC applies strict rules based on your trading structure, the type of expense, and the accounting method you use. For the 2026/27 tax year, the rules differ drastically depending on whether you are a sole trader, a landlord, a limited company director, or a standard employee.
This guide explores exactly what you can claim, separating allowable mortgage interest from non-deductible capital repayments.
Sole Traders and Freelancers Working from Home
If you operate as a self-employed sole trader and use a portion of your home for your business, you can claim a proportion of your mortgage interest as an allowable business expense. However, you can never deduct the capital repayment portion of your mortgage.
The “Wholly and Exclusively” Test
To claim a deduction, you must use that part of your home “wholly and exclusively” for the trade during the time you claim it. HMRC clarifies that you do not need to use a room permanently for business to claim an expense. If you use a room solely for business during specific hours, you can apportion your fixed costs, including mortgage interest, by both area and time.
“If part of the home is set aside solely for trade use for a specific period then a part of these costs is allowable. It will normally be appropriate to apportion these expenses by area and time.”
The Cash Basis £500 Cap
If you calculate your trading profits using the cash basis, HMRC restricts your deduction for interest and finance costs. Under the cash basis rules, you can only deduct a maximum of £500 for interest payments and incidental costs of obtaining finance per trade period. If your apportioned mortgage interest exceeds £500, you must use traditional accruals accounting to claim the full apportioned amount.
Simplified Expenses
Many sole traders use the “simplified expenses” flat rate to calculate their home office running costs (like heating and lighting). Using this flat rate deduction does not prohibit you from claiming a separate deduction for fixed costs like mortgage interest and council tax, provided you can attribute an identifiable proportion to your business use.
Residential Landlords: The Section 24 Restriction
If you are an individual landlord renting out residential property, the answer to “can I expense my mortgage?” is no. Since the 2020/21 tax year, section 272A of the Income Tax (Trading and Other Income) Act 2005 prohibits individual landlords from deducting the costs of a dwelling-related loan (mortgage interest) from their property income.
Instead of deducting the interest as an expense, you receive a 20% basic rate tax reduction on your total tax liability based on the finance costs you incurred.
(Note: This restriction does not apply to landlords operating via a limited company; companies can still deduct mortgage interest as a standard business expense).
Limited Company Directors
If you direct your own limited company and work from home, the company cannot simply pay your personal mortgage. However, you can rent your home office to your limited company and charge the company a commercial rent that covers your mortgage interest costs.
When a director permits their company to occupy their property and the company pays the mortgage interest, HMRC treats this as an allowable business expense for the company. You must ensure that the rent or interest payments do not exceed fair commercial consideration for the use of the property. If the payment remains commercial, HMRC will not treat it as employment income or a taxable benefit in kind.
To justify the home as a workplace, you must demonstrate an “objective requirement” for the work to take place at your home, such as the installation of sophisticated security equipment or specialised trade machinery.
Employees: The 2026/27 Homeworking Relief Ban
If you are a standard employee working from home, you cannot expense your mortgage. Historically, employees could claim a £6 weekly flat rate for homeworking expenses. However, for the 2026/27 tax year, the government has introduced a new measure (section 360B of the Income Tax (Earnings and Pensions) Act 2003), which abolishes income tax deductions for non-reimbursed homeworking expenses for employees from 6 April 2026. You can no longer claim tax relief for the costs of working from home unless your employer specifically reimburses you.
Summary of Mortgage Interest Deductibility
| Business Structure | Accounting Method / Asset | Permitted Deduction | Statutory / HMRC Authority |
|---|---|---|---|
| Sole Trader | Accruals Basis | Apportioned mortgage interest (by area and time). No capital. | HMRC BIM47820 |
| Sole Trader | Cash Basis | Capped at a maximum of £500 per year for all finance costs. | HMRC BIM70040 |
| Sole Trader | Simplified Expenses | Can claim apportioned interest alongside the flat rate for utilities. | HMRC BIM75010 |
| Individual Landlord | Residential Property | No direct deduction. Replaced by a 20% basic rate tax credit. | s 272A ITTOIA 2005 |
| Company Director | Renting to own company | Company deducts commercial rent/interest paid for sole-use space. | HMRC BIM45755 |
| Employee | Home Office | None. Relief abolished from 6 April 2026. | s 360B ITEPA 2003 |
For completeness, if you withdraw capital from your sole trader business to fund personal property purchases (such as a holiday home), HMRC will restrict your allowable interest on business loans if your capital account becomes overdrawn. Always check your capital account balance before withdrawing business funds to ensure you do not inadvertently trigger an interest restriction on your existing business borrowings.
Next steps: Review your sole trader accounting method before the end of the tax year to determine whether the cash basis £500 interest cap leaves you worse off than switching to traditional accruals accounting.
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