Last updated: 16 October 2026
Can landlords deduct mortgage interest?
Individual landlords cannot deduct mortgage interest or other finance costs from residential rental income. Instead, they get a tax credit worth 20% of the finance costs. This rule, often called “Section 24”, was phased in from 2017 and fully applies today. It hits higher and additional rate taxpayers hardest.
How the 20% tax credit works
The credit is 20% of the lowest of:
- finance costs for the year, plus any unused finance costs brought forward
- your property profits for the year (before finance costs)
- your adjusted total income above the personal allowance
Unused finance costs can be carried forward to later years.
Worked example
Jess is a higher rate taxpayer. Her flat earns £18,000 rent, with £3,000 of allowable costs and £9,000 of mortgage interest.
| Item | Amount |
| Rental profit (without deducting interest) | £15,000 |
| Tax at 40% | £6,000 |
| Less tax credit: 20% of £9,000 | £1,800 |
| Tax payable | £4,200 |
If she could deduct the interest in full, her tax would be 40% of £6,000, so £2,400. Section 24 costs her £1,800 a year.
The 2027 change
From April 2027, property income tax rates are due to rise by 2 percentage points to 22%, 42% and 47%. The government has said the finance cost tax credit will rise to 22% at the same time, so basic rate landlords are no worse off on their interest.
What finance costs are covered?
Mortgage interest, interest on loans to buy furnishings, arrangement fees and the costs of taking out or repaying a loan are all finance costs. Capital repayments are never deductible.
Who is not affected?
- Limited companies, which deduct interest in full as a business expense.
- Commercial property landlords.
- Furnished holiday lets were exempt until April 2025, but the regime has ended, and they now follow the same rules.
Should you move properties into a company?
Companies pay corporation tax at 19% to 25% with full interest relief, but there are big costs to transfer existing properties: capital gains tax on the market value, Stamp Duty Land Tax at higher rates, and refinancing. Incorporation relief may defer CGT if the letting is a business. It suits some portfolio landlords but not most single-property owners.
Other ways to reduce the effect
- Share ownership with a lower-earning spouse.
2. Pay down the most expensive debt first.
3. Claim all other allowable costs, such as repairs, agent fees and insurance.
4. Make pension contributions to keep income in the basic rate band.
Records to keep
Keep annual mortgage statements showing interest separately from capital, plus details of any further borrowing and what it was used for. HMRC can ask you to show that loans were used for the letting business.
Frequently asked questions
Does Section 24 apply to my own home?
No, only to let residential property.
Can a basic rate taxpayer lose out?
Yes, if the interest pushes them into the higher rate band, as rental profit is calculated before interest.
What about a remortgage to release equity?
Interest is only a finance cost if the money is used for the letting business, up to the value of the property when first let.
Do I claim the credit automatically?
You enter finance costs on the property pages of your tax return.
Related: allowable landlord expenses, buying property personally or via a company and rental income before 40% tax.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with landlord tax returns and mortgage interest relief. See our landlord 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 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
