Is mortgage interest tax deductible in the UK? For most homeowners, the answer is no. However, the position is different for landlords, property companies and some self-employed people who use part of their home for business.
Individual landlords with residential property generally cannot deduct mortgage interest directly from rental income. Instead, they may receive a basic-rate tax reduction for qualifying finance costs. Companies holding rental property are not subject to the same residential finance-cost restriction and generally obtain relief for qualifying interest under Corporation Tax rules.
The rules for holiday lets have also changed. From 6 April 2025, the special Furnished Holiday Lettings tax regime was abolished for Income Tax and Capital Gains Tax, meaning former FHL properties are now broadly treated in the same way as other property businesses.
How Has Mortgage Interest Tax Relief Changed in the UK?
Historically, landlords were allowed to deduct the full amount of mortgage interest from their rental income before calculating tax. This method directly reduced taxable profit, offering significant relief especially for higher-rate taxpayers.
However, the introduction of Section 24 brought a fundamental shift. Phased in between 2017 and 2020, this reform gradually removed the ability for individual landlords to deduct mortgage interest at their marginal tax rate. Today, regardless of whether a landlord is a basic, higher, or additional-rate taxpayer, they can only claim a 20% tax credit on mortgage interest.
This change has had a considerable impact on the profitability of many rental property portfolios, particularly those held by higher earners. It has also influenced how many investors structure their property businesses, with a noticeable shift toward limited company ownership to maintain full expense deductibility.
Is Mortgage Interest Tax Deductible for Homeowners in the UK?
For individuals who own and occupy their primary residence, mortgage interest is not deductible for personal income tax purposes in the UK. This has long been the case and differs significantly from tax practices in countries like the United States.
Mortgage interest on a main residence is normally a personal expense and cannot be deducted simply because the homeowner has a mortgage.
However, a self-employed person who genuinely uses part of their home for their trade may be able to claim an appropriate business proportion of certain household costs, including mortgage interest, when using actual-cost calculations.
HMRC allows costs to be apportioned on a reasonable basis, taking account of factors such as the space used and the amount of time it is used solely for business purposes. The property does not necessarily have to contain a permanently dedicated office used for no other purpose at any time.
The key point is that UK tax law does not treat home ownership as an income-generating activity. Therefore, mortgage interest on your personal home remains a private expense and is not eligible for tax relief.
Can Buy-to-Let Landlords Still Claim Mortgage Interest Relief?
Yes. Individual residential landlords can still receive tax relief for qualifying mortgage interest and other finance costs, but these costs are no longer deducted directly when calculating rental profits.
Instead, relief is provided through a basic-rate tax reduction. However, it is important not to describe this simply as an automatic 20% credit on every pound of mortgage interest.
HMRC calculates the reduction at 20% of the lowest of:
- Qualifying finance costs for the year, including eligible amounts brought forward
- Property business profits after brought-forward losses
- Adjusted total income above the Personal Allowance
If the relief is restricted by property profits or adjusted total income, qualifying unused finance costs can normally be carried forward for use in a later tax year.
Tax Relief Comparison Table
| Scenario | Before Section 24 | After Section 24 (Current) |
| Rental Income | £25,000 | £25,000 |
| Mortgage Interest | £10,000 | £10,000 |
| Taxable Profit | £15,000 | £25,000 |
| Tax (Higher Rate @ 40%) | £6,000 | £10,000 |
| Tax Credit (20% of £10,000) | £0 | £2,000 |
| Final Tax Bill | £6,000 | £8,000 |
This example assumes the landlord has sufficient property profits and adjusted total income to obtain the full basic-rate reduction shown. In practice, HMRC’s calculation can restrict the amount of finance-cost relief available in a particular tax year.
The shift from direct deduction to tax credit has resulted in increased tax liabilities for many landlords. It has also prompted many to reassess whether buy-to-let remains a viable long-term investment strategy under current tax rules.
What Types of Property Qualify for Mortgage Interest Relief?
| Property Type | Mortgage Interest Tax Treatment |
|---|---|
| Main Residence | Normally no personal Income Tax deduction |
| Second Home for Personal Use | No mortgage interest relief |
| Residential Buy-to-Let Held by an Individual | Basic-rate finance-cost tax reduction may apply |
| Former Furnished Holiday Let Held by an Individual | Since 6 April 2025, generally treated under the same property income and finance-cost rules as other residential lettings |
| Commercial Property | Qualifying interest may generally be deductible when calculating taxable property business profits |
| Property Held by a Company | Qualifying finance costs generally receive relief under Corporation Tax loan-relationship rules |
The former Furnished Holiday Lettings regime was abolished from 6 April 2025 for Income Tax and CGT and from 1 April 2025 for Corporation Tax. Individual owners of former FHL properties are therefore now subject to the residential finance-cost restriction where applicable. Companies remain outside that particular restriction.
The tax treatment depends on the type of property, how it is used and whether it is owned personally or through a company. Company borrowing is generally dealt with under the Corporation Tax loan-relationship rules rather than the residential landlord finance-cost restriction.
Who Can Claim Mortgage Interest Relief in the UK?
There are three main groups with access to mortgage interest tax relief in the UK, but their entitlements differ substantially.
1. Private Residential Homeowners
These individuals receive no tax relief on mortgage interest unless part of the property is used exclusively for a business purpose.
2. Individual Landlords (Buy-to-Let)
They can no longer deduct interest from rental income. Instead, they receive a 20% tax credit on eligible finance costs.
3. Limited Companies
Property companies are not subject to the same residential finance-cost restriction that applies to individual landlords. Qualifying interest is generally dealt with under the Corporation Tax loan-relationship rules, although other Corporation Tax restrictions can apply depending on the circumstances.
For the 2026/27 financial year, the main Corporation Tax rate remains 25%, while the small profits rate is 19% for qualifying companies with profits of £50,000 or less.
Marginal Relief can apply where qualifying profits fall between £50,000 and £250,000, with thresholds potentially reduced where there are associated companies.
This means a limited company can provide different tax treatment for mortgage interest, but it should not automatically be described as more tax-efficient.
Corporation Tax, extracting profits, financing costs, Stamp Duty Land Tax and Capital Gains Tax implications should all be considered before transferring or buying property through a company.
Each of these groups must keep accurate documentation of all mortgage interest paid to substantiate their tax claims.
How Do Landlords Claim Mortgage Interest Relief?
Landlords must report all income and allowable expenses via the Self Assessment system. The process involves several stages, and mortgage interest relief must be calculated according to current legislation.
First, landlords must calculate their total rental income. From this, they deduct all allowable expenses except mortgage interest. The resulting figure becomes the taxable profit.
Next, income tax is calculated based on the landlord’s tax band. Finally, a 20% tax credit is applied to the mortgage interest amount.
This means that although mortgage interest is no longer an “expense” in the traditional sense, landlords still benefit from tax relief—just at a lower rate and with a different application method.
What Records Should Be Kept for Claiming Mortgage Interest Tax Relief?
Accurate documentation is essential to ensure compliance with HMRC and to substantiate any tax relief claims. At a minimum, landlords should keep:
- Annual mortgage statements showing interest payments
- Monthly breakdowns of mortgage payments, separating interest from capital
- Rental income records, including bank statements
- Receipts and invoices for property-related expenses
- Tenancy agreements
- Records of any professional fees related to letting or maintaining the property
These documents may be requested by HMRC during an audit and must be retained for several years.
Does Refinancing Affect Mortgage Interest Relief?
Refinancing a buy-to-let mortgage does not affect the eligibility for mortgage interest relief, provided the new loan is used for the same rental property and the property continues to be let commercially.
However, if additional borrowing is secured against the rental property, how that money is used matters significantly.
If the borrowed funds are used for property improvements or further rental investments, the interest may qualify for relief. But if the funds are used for personal expenses such as a car purchase or holiday the interest is generally not allowable.
This distinction underscores the importance of consulting with a qualified tax adviser before refinancing or taking out additional loans.
What Are the Capital Gains Tax Implications When Selling a Rental Property?
When a landlord sells an investment property, Capital Gains Tax (CGT) applies to the profit earned. Mortgage interest relief does not affect CGT directly, but it’s an important part of calculating the property’s overall financial performance.
The gain is calculated by subtracting the purchase price (plus eligible costs) from the sale price. Costs that can reduce the gain include legal fees, estate agency fees, and the cost of capital improvements (but not repairs).
Capital Gains Example
- Purchase Price: £220,000
- Capital Improvements: £30,000
- Sale Price: £340,000
- Selling Costs: £6,000
- Capital Gain: £340,000 – (£220,000 + £30,000 + £6,000) = £84,000
For the 2026/27 tax year, individuals have a £3,000 Capital Gains Tax Annual Exempt Amount.
After allowable losses, reliefs and the annual exemption are taken into account, taxable gains are generally charged at 18% to the extent they fall within the available basic-rate band and 24% above it.
The previous 28% higher residential property CGT rate is therefore outdated. The higher residential property rate was reduced from 28% to 24% from 6 April 2024 and remains 24% in 2026/27.
Is Property Investment Still a Viable Strategy Without Full Mortgage Interest Deduction?
While changes to mortgage interest relief have reduced the profitability of buy-to-let for some investors, property remains an attractive long-term investment in many parts of the UK. Factors like rental demand, capital growth, and location continue to play significant roles in determining investment success.
Investors should consider the net return after accounting for tax liabilities. In many cases, using a limited company structure can help restore tax efficiency, particularly for higher-rate taxpayers.
Commercial property and company ownership can have different finance-cost tax treatment, but furnished holiday lets no longer receive their former preferential tax regime following its abolition from April 2025.
Investment decisions should be based on a comprehensive financial plan that includes tax considerations, rental projections, mortgage costs, and capital appreciation potential.
What Strategies Can Help Landlords Maximise Tax Efficiency?
Landlords can take several steps to manage their tax liability effectively:
- Assess whether to invest as an individual or via a limited company
- Ensure all allowable expenses are being claimed
- Compare the tax treatment of residential, commercial and company-held property before investing
- Plan property disposals to reduce capital gains tax
- Maintain excellent record-keeping
- Use financial forecasting tools to model different scenarios
- Seek professional tax advice to align property strategies with personal financial goals
Conclusion
Mortgage interest is generally not tax deductible for someone simply owning and living in their main home. Individual residential landlords also cannot deduct mortgage interest directly from rental profits, although qualifying finance costs can provide a basic-rate tax reduction subject to HMRC’s calculation rules.
The position differs for companies, where qualifying borrowing costs are generally dealt with under Corporation Tax loan-relationship rules. The Corporation Tax main rate remains 25% in 2026/27, with a 19% small profits rate available to qualifying companies.
Landlords should also be aware that the special Furnished Holiday Lettings regime ended in April 2025. Former FHL properties are now broadly brought within the same property tax framework as other lettings, including the residential finance-cost restriction for individual owners where applicable.
Because mortgage interest, ownership structure and eventual Capital Gains Tax can significantly affect overall returns, landlords should assess the complete tax position rather than considering mortgage-interest relief in isolation.
Frequently Asked Questions
Is Mortgage Interest Tax Deductible on My Main Home in the UK?
Normally no. Mortgage interest on a home you live in is a personal expense, although some self-employed people may claim an appropriate business-use proportion.
Can Buy-to-Let Landlords Deduct Mortgage Interest in 2026?
Individual residential landlords cannot deduct it directly from rental profits. Instead, qualifying finance costs may receive a basic-rate tax reduction subject to HMRC’s calculation rules.
Is the Mortgage Interest Tax Credit Always 20% of All Interest Paid?
No. The 20% reduction is based on the lowest of qualifying finance costs, property business profits and adjusted total income, so the relief can be restricted.
Can a Limited Company Deduct Buy-to-Let Mortgage Interest?
Property companies are not subject to the individual residential landlord finance-cost restriction. Qualifying interest is generally dealt with under Corporation Tax loan-relationship rules.
Are Furnished Holiday Lets Still Given Special Mortgage Interest Tax Relief?
No. The special FHL regime ended from April 2025, and former FHL income is now generally treated alongside other property income.
What Is the Capital Gains Tax Rate When Selling a Rental Property in 2026/27?
Individuals generally pay CGT at 18% within the available basic-rate band and 24% above it. The individual Annual Exempt Amount for 2026/27 is £3,000.
How Long Should Landlords Keep Their Property Tax Records?
HMRC generally requires property letting records to be kept for at least five years after the 31 January Self Assessment submission deadline for the relevant tax year.
