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Landlord tax

Can I claim mortgage interest as a landlord?

UK residential landlords get a 20% basic-rate tax credit on mortgage interest — not a deduction from rental income. Here's exactly how the credit is calculated, with worked examples, and where to record interest under MTD.

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The short answer

Yes — residential UK landlords can “claim” mortgage interest, but as a 20% basic-rate tax credit, not as a deduction from rental income. The credit is applied against your overall tax bill at the year-end calculation.

For basic-rate (20%) taxpayers: the credit is mathematically identical to the old full-deduction system. You’re roughly neutral.

For higher-rate (40%) and additional-rate (45%) taxpayers: the credit is much less generous than the old deduction. Your effective tax on rental profit can roughly double in heavily-leveraged portfolios.

SPV / limited-company landlords: this restriction doesn’t apply. Companies deduct mortgage interest as a normal business expense.

The mechanics

How the 20% credit is calculated

Before April 2017, mortgage interest was deducted from rental income before tax. Section 24 (Finance Act 2015) restricted that, phasing the deduction down to zero over 2017–2020. Since April 2020, the rule is:

Step 1: Calculate tax on full rental profit
(rent − other allowable expenses, NOT interest)
Step 2: Take 20% of the mortgage interest paid in the year
Step 3: Apply that 20% as a credit against the tax bill from step 1

For a basic-rate taxpayer, steps 1–3 produce the same answer as the old full-deduction method. For higher-rate taxpayers, the credit at 20% is less than the 40% you’re effectively paying on the “phantom” profit (rental income before interest), so your tax bill rises.

Worked examples

Same property, two tax bands

Both landlords have one property generating £24,000 gross rent with £15,000 mortgage interest and £2,000 of other allowable expenses. The only difference is whether they’re a basic-rate or higher-rate taxpayer.

  • Basic-rate (20%) taxpayer

    £24,000 gross rent, £15,000 mortgage interest, £2,000 other allowable expenses

    1. 1Taxable rental income = £24,000 − £2,000 other expenses = £22,000
    2. 2Tax at 20% on £22,000 = £4,400
    3. 320% credit on £15,000 interest = £3,000
    4. 4Net tax bill on the property = £4,400 − £3,000 = £1,400

    Verdict: Effectively the same as the pre-Section-24 calculation. Basic-rate landlords are roughly neutral.

  • Higher-rate (40%) taxpayer

    £24,000 gross rent, £15,000 mortgage interest, £2,000 other allowable expenses

    1. 1Taxable rental income = £24,000 − £2,000 other expenses = £22,000
    2. 2Tax at 40% on £22,000 = £8,800
    3. 320% credit on £15,000 interest = £3,000
    4. 4Net tax bill on the property = £8,800 − £3,000 = £5,800

    Verdict: Significantly worse than pre-Section-24. If interest had been deductible as an expense, the tax bill would have been £2,800 (40% on £7,000 profit). Section 24 adds ~£3,000.

The catch

The credit is capped, with carry-forward

The 20% credit is capped at the lower of:

  • 20% of total finance costsfor the year (the “raw” entitlement)
  • 20% of rental profits (after other expenses, before interest)
  • 20% of your total taxable income, minus personal allowance and savings/dividend income

In years where rental profit is low (vacancy, major repair, market dip), you may not absorb the full credit. The unused portion carries forward indefinitely to a future year with capacity. This is rarely a meaningful change for steady portfolios but matters during voids or refurb periods.

Under MTD

Where mortgage interest sits in your records

Under MTD for Income Tax, mortgage interest must be recorded digitally in the period it was paid, like any other expense. The crucial detail: it gets a separate category, distinct from repairs, agent fees, or other allowable expenses. HMRC calls this restricted finance costs.

Your quarterly summary reports the interest figure to HMRC but doesn’t apply the 20% credit at that stage. The credit is calculated and applied at the final declaration step, end of tax year, by your accountant or your MTD-compatible filing software.

LandlordFlow tags mortgage interest separately by default in the financial records area, so when your accountant pulls the per-property P&L the interest line is already isolated. No reconstruction in March.

Common questions

Questions, answered

So can I still “claim” mortgage interest or not?+
Yes, but as a tax credit, not as an expense deduction. You receive a tax credit equal to 20% of the mortgage interest paid in the tax year, applied against your overall tax liability. The effect is identical to a full deduction for basic-rate (20%) taxpayers, and less generous for higher-rate (40%) and additional-rate (45%) taxpayers.
What counts as “mortgage interest” here?+
Only the interestpart of buy-to-let mortgage payments, plus interest on loans taken out specifically to fund the purchase or improvement of let property. Capital repayments don’t count. Arrangement fees and broker fees on the mortgage also qualify but are typically amortised across the term.
Does this apply to limited companies (SPVs)?+
No. Companies (including property SPVs) continue to deduct mortgage interest as a normal business expense under Corporation Tax. The 20% credit only applies to individual residential landlords— the Section 24 restriction. Furnished holiday lets joined this rule from April 2025 when the FHL regime was abolished.
How does HMRC restrict the credit if my rental profit is low?+
The credit is capped at the lower of: (a) 20% of finance costs, (b) 20% of rental profits, and (c) 20% of total taxable income minus personal allowance. The result is that landlords with high mortgage interest but low rental profit may not get the full 20% benefit in a single year — the unused portion carries forward to a future year with capacity.
Where do I record mortgage interest under MTD ITSA?+
Mortgage interest goes on a separate linein your digital records, flagged as restricted finance costs. It’s reported in your quarterly summary but the 20% credit is calculated and applied at the year-end final declaration stage, not in the quarterly summary itself. Your record-keeping software (LandlordFlow does this by default) keeps the interest separate from other expenses so the year-end calculation is clean.

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