Last updated: 14 October 2026
Is additional mortgage interest tax-deductible for your business?
It can be. If you remortgage your home or take a further advance and use the extra borrowing for your business, the interest on that extra amount is an allowable business expense for a sole trader or partner, because tax relief follows what the money is used for, not what it’s secured on. The interest on your original home mortgage isn’t deductible. For a landlord, interest on borrowing used in the property business gets a 20% tax credit rather than a deduction. If you lend the money to your own company, different rules apply.
How relief works
| Use of extra borrowing | Relief? |
| Buy equipment or stock for your sole trade | Deductible business expense |
| Fund working capital in your partnership | Deductible, or loan interest relief |
| Invest in your buy-to-let | 20% tax credit on finance costs |
| Lend to or buy shares in your close company | Qualifying loan interest relief against total income, subject to the cap |
| Home improvements or personal spending | No relief |
Working out the deductible amount
Only the interest on the business portion counts. If you increase your mortgage by £50,000 and use it all in the business, the interest on that £50,000 is deductible. If you use only £30,000 for the business, claim the interest on £30,000.
Example
Rob, a self-employed builder, remortgages his home, borrowing an extra £40,000 at 5% to buy a van and tools. His total mortgage interest is £9,000 a year, of which £2,000 relates to the extra borrowing. He deducts £2,000 as a business expense. Under the cash basis, interest deductions are not capped at £500 (that cap was removed for cash basis traders from April 2024).
Qualifying loan interest relief
If you borrow to invest in your own trading company or partnership, you may claim relief against your total income. It’s subject to the cap on income tax reliefs: the greater of £50,000 or 25% of your income.
Capital withdrawn from the business
If you withdraw more capital than you’ve introduced, the borrowing used to fund those drawings isn’t for business purposes, and HMRC may restrict the interest. Keep a clear record of capital introduced and drawn.
Common mistakes
- Claiming all mortgage interest, not just the business portion
- Using business borrowing for personal spending and still claiming it
- Overdrawing capital and keeping full relief
- Forgetting landlords get a tax credit rather than a deduction
Records to keep
Keep the remortgage offer, bank statements showing where the money went and invoices for business purchases funded by it.
Equity release and secured loans
The same principle applies to a second-charge loan or equity release on your home. If the money goes into the business, the interest on it is a business cost. Lenders may ask about the purpose, and their paperwork can help support your claim if HMRC asks.
Frequently asked questions
Can I claim arrangement fees?
Yes, for the business part.
What if I later sell the van?
The loan purpose stays business while it funds the trade.
Do I need a separate loan account?
Not required but helpful.
Does a company get relief?
Yes, as a deduction if it borrows itself.
Related: replacing an asbestos roof, whether to incorporate and family loan interest.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with business finance costs. See our sole trader accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
