Mortgage interest tax relief for landlords

Before April 2017, landlords deducted finance costs such as mortgage interest from their rental profits in the same way as other expenses. The rules then changed in stages over four tax years, moving relief away from a deduction and towards a tax reduction at the basic rate. Since 6 April 2020 the change has been fully in place, and many landlords still know it as the section 24 restriction.

When the change was announced, HMRC said only some landlords would pay more tax. In practice those are landlords who pay tax above the basic rate, because their relief on interest is now limited to 20%. HMRC also pointed out that the way taxable income is calculated changes, which can affect other things that depend on your income, such as the High Income Child Benefit Charge.

HMRC calculates the reduction as the basic rate value, currently 20%, of the lowest of these three amounts:

• your finance costs that were not deducted from rental income in the tax year
• the profits of your property business in the tax year
• your adjusted total income, which is your income after losses and reliefs, leaving out savings and dividend income

In most years with a healthy rental profit, the finance costs figure is the lowest and you simply get 20% of your interest back as a reduction in your tax bill. The other two limits matter when profits are thin or your other income is low.

The tax reduction cannot be used to create a tax refund. If the reduction is capped by your property profits or your adjusted total income, the difference between that figure and your finance costs is carried forward, so it can be used in a later year.

The restriction covers more than the mortgage itself. HMRC's announcement of the change listed interest on mortgages, on loans, including loans to buy furnishings, and on overdrafts, along with fees and other incidental costs of getting or repaying mortgages and loans.

Only the interest element of a repayment mortgage is a finance cost. GOV.UK is clear that the full amount of your mortgage payment is not an allowable expense, because the capital part of each payment is reducing your loan rather than paying for the use of it. Your lender's annual statement usually shows the interest separately, which makes the figure easier to find.

If one loan was used for both residential and commercial property, GOV.UK says you need a reasonable apportionment of the interest, and only the residential share is restricted.

The rule applies to individuals who let residential property, whether they live in the UK or let UK property from abroad. It also applies to people who let residential property in partnership and to trustees or beneficiaries of trusts who pay income tax on property profits.

It does not apply to companies. HMRC's property income manual says companies carrying on a property business are not affected, and nor are loans that are wholly for commercial properties. Our guide to how rental income is taxed covers the wider picture for individual landlords.

Furnished holiday lettings used to be outside the restriction. The special rules for them ceased to apply for income tax from 6 April 2025, so loan interest on a former holiday let is now treated in the same way, with only basic rate relief available.

From the 2027 to 2028 tax year, the Budget on 28 October 2026 announced that property income outside Scotland would have its own rates of 24%, 44% and 49%. Those rates are announced and not yet law. We have not seen confirmation of how the finance cost reduction will interact with them, so this guide gives no rate for that year. If your plans depend on it, check GOV.UK once the Finance Bill is published.

The calculation is built into the property pages of the self assessment return, but carried-forward amounts and mixed-use properties are easy to get wrong. What an accountant typically does for a landlord is set out on our page on accountants for landlords. Where we can, we will put you in touch with a local accountant; you can read how it works before you send an enquiry.