BTL Mortgage Tax Relief for UK Landlords: How It Actually Works

The hardest part of a buy-to-let mortgage is rarely the borrowing, it is the tax. If you hold the property in your own name, Section 24 means you no longer deduct mortgage interest from your rental profit at all. You can run a property at a thin margin and still owe more tax than the cash you actually took home. BTL mortgage tax relief works one way for a personal landlord in 2025/26 and a completely different way through a limited company, and the same set of rules governs interest-only borrowing, equity release, holiday lets and a future sale.

Can landlords claim BTL mortgage interest as a tax deduction?

If you hold the property personally, no. This is the single point that catches most people out, so it is worth being exact. Before 2017, you deducted mortgage interest from rental income as a normal business expense, and your taxable profit was the figure after interest. Section 24 of the Finance (No.2) Act 2015 phased that out between 2017/18 and 2019/20, and from 6 April 2020 it has applied in full.

The mechanics now work in two steps. First, you calculate your taxable rental profit without deducting any finance costs, so the interest is effectively added back. Second, HMRC gives you a tax reducer worth 20% of the finance cost, applied against your final tax bill. The interest never reduces your taxable profit; it only generates a basic-rate credit at the end. For most landlords that is the difference between a manageable bill and an uncomfortable one. Our complete guide to Section 24 and tax relief takes the calculation apart in full, and how to calculate the Section 24 tax credit step by step walks through the arithmetic.

The reducer is capped. It is the lower of 20% of the finance costs, 20% of your rental profit, and 20% of your income above the personal allowance. Where the cap bites, unused finance costs carry forward to future years. This matters for landlords with large interest bills relative to profit, which is increasingly common when borrowing is interest-only.

Why a company landlord gets full mortgage interest relief

Section 24 is an income-tax rule. It does not touch companies. A limited company that owns rental property (usually a special purpose vehicle, or SPV) deducts the full mortgage interest from its rental income before working out corporation tax, exactly as the old pre-2017 personal regime worked. That single structural fact is why incorporation is now on the table for so many higher-rate landlords.

Here is the core difference, as a tax comparison only. It says nothing about mortgage pricing, because company BTL lending and personal BTL lending are different products and live terms move constantly.

Feature	Personal landlord	Limited company (SPV)
Mortgage interest treatment	Added back to profit; 20% basic-rate reducer (22% from 2027/28)	Fully deducted before corporation tax
Tax on rental profit	Income tax at 20%, 40% or 45% (22/42/47 from 2027/28)	Corporation tax: 19% small profits rate, 25% main rate, marginal band between
Effect on personal allowance and child benefit	Added-back interest inflates total income, can trigger tapering and the HICBC	Profit stays in the company until extracted
Extracting cash	Profit is already yours after tax	Dividend or salary, taxed again on the way out
Moving existing property in	Not applicable	Potential CGT on disposal and SDLT on acquisition by the company

The corporation tax rates are the standard ones: a 19% small profits rate up to GBP 50,000 of profit, a 25% main rate above GBP 250,000, and marginal relief tapering between the two (CTA 2010 Part 3A). Whether incorporation actually wins for you depends on your marginal income tax rate, how much of the profit you need to draw out, and the one-off cost of getting personal property into the company. Our buy-to-let limited company guide models that properly, and buy-to-let limited company mortgage options covers the company borrowing angle specifically.

Interest-only versus repayment: does it change the tax?

The relief on the interest is the same either way, but the two structures behave very differently in your Section 24 calculation and your cash flow.

On a repayment mortgage, each monthly payment is part interest and part capital. Only the interest slice is a finance cost. The capital repayment is never an allowable expense, because you are paying down a debt, not incurring a cost of letting. As the balance falls, the interest portion shrinks year by year, so your finance cost (and the size of the Section 24 reducer) naturally declines over the term.

On an interest-only mortgage, the whole payment is interest, so the entire monthly cost is a finance cost in the relief calculation. Cash flow is lighter, but you repay nothing off the loan, and if you are a higher-rate taxpayer the finance-cost wedge that Section 24 leaves stays at its maximum for the life of the loan. That is the heart of the planning question: interest-only maximises the figure that only attracts a basic-rate reducer. Section 24 and interest-only mortgage tax planning goes deeper on it.

Question	Interest-only	Repayment
What counts as a finance cost?	The whole monthly payment	Only the interest portion of each payment
Capital paid down?	None over the term	Yes, balance falls each year
Section 24 reducer over time	Stays at maximum	Declines as interest portion shrinks
Monthly cash demand	Lower	Higher

What about arrangement fees, broker fees and setup costs?

Loan arrangement fees, valuation fees charged by the lender, broker fees, and other costs of arranging the borrowing are finance costs in their own right. That means they follow the interest into the Section 24 restriction. A personal landlord does not deduct them from profit; they join the finance-cost total that attracts the basic-rate reducer. A company deducts them in full before corporation tax, in the same way as the interest.

This is a common error in landlord self-assessment returns: arrangement and broker fees are entered as ordinary expenses and deducted from profit, when they should sit in the finance-costs box. If you are unsure which costs are finance costs and which are genuine running expenses (letting agent fees, repairs, insurance, and the like, which remain fully deductible), our piece on finance costs and Section 24 sets out the boundary.

How Section 24 hits higher-rate landlords (a worked example)

The figures below are illustrative and use round numbers to show the mechanism, not a quote of anyone's actual position. Say your employment plus rental income puts you firmly in the higher-rate band, and your portfolio produces GBP 30,000 of rent and GBP 15,000 of mortgage interest.

Under the old pre-2017 rules, your taxable rental profit would have been GBP 30,000 minus GBP 15,000, so GBP 15,000, taxed at 40%, giving a GBP 6,000 tax bill on the rent.

Under Section 24 today, the interest is added back. Your taxable rental profit is the full GBP 30,000, taxed at 40%, so GBP 12,000. You then receive a basic-rate reducer of 20% of the GBP 15,000 interest, which is GBP 3,000. The net tax on the rent is GBP 12,000 minus GBP 3,000, so GBP 9,000. The same property and the same cash interest now produce GBP 3,000 more tax than under the old rules. That GBP 3,000 is the 20-percentage-point wedge (40% rate against 20% relief) applied to the GBP 15,000 of interest.

There is a second, quieter effect. Adding the GBP 15,000 of interest back into your total income can push you over the GBP 100,000 personal allowance taper, over the GBP 60,000 child benefit threshold, or from the basic into the higher band. The headline reducer is only half the story; the knock-on effect on your allowances often costs more. Section 24 for higher-rate taxpayers covers those interactions.

What changes for landlords from April 2027?

There is a widespread but wrong belief that the Section 24 reducer is frozen at 20% forever. It is not. Finance Act 2026 received Royal Assent on 18 March 2026 and introduced separate property income tax rates from 6 April 2027: a property basic rate of 22%, a higher rate of 42%, and an additional rate of 47%. These apply to property income in England, Wales and Northern Ireland; only Scotland is carved out, where Holyrood sets the rates.

The Section 24 reducer rises to 22% in step with the new basic rate. A basic-rate landlord therefore sees no new wedge open: property income is taxed at 22% and the reducer is 22%, so the two still match. A higher-rate landlord's reducer improves slightly, from 20% to 22%, while the property income rate moves from 40% to 42%, so the finance-cost wedge stays at the same 20 percentage points as today. The change is not the disaster some commentary suggests, but it is not nothing either, and the planning logic for higher-rate landlords does not reverse. Section 24 and 2027 tax-year planning sets out the detail.

Holiday lets: the FHL advantage has gone

If your borrowing funds a short-let or holiday property, the rules changed under your feet. The Furnished Holiday Lettings regime was abolished from 6 April 2025. Until then, an FHL was treated more like a trade, and one of its prized features was full deductibility of mortgage interest, outside Section 24. That advantage no longer exists.

From 6 April 2025, a personally held holiday let is an ordinary UK property business, and the same Section 24 restriction applies to its mortgage interest as to any standard buy-to-let: a basic-rate reducer, not a deduction. The abolition also removed the FHL capital allowances treatment and its CGT reliefs. If you bought into short lets partly for the old interest treatment, that part of the case is gone. Our guide on the abolition of Furnished Holiday Lettings covers what individual owners need to do.

Remortgaging and releasing equity

Remortgaging a BTL when a fixed deal ends is routine, and it does not by itself create a tax charge, because you have not disposed of anything. What changes is your finance cost, and therefore your Section 24 figures. Interest on borrowing up to the value of the property when it first entered your letting business is generally a relievable finance cost (still restricted to the basic rate for a personal landlord). If you draw out extra equity, the interest on the additional borrowing is only relievable to the extent it is used for the property business. Borrowing extra to fund non-business spending breaks the link, and that interest is not relievable.

This is a frequent source of error: landlords assume all interest on a remortgaged loan is relievable, when relief follows the purpose of the borrowing, not the security. If you are planning to release equity to fund another deposit, model the Section 24 impact first. Remortgaging a BTL and the tax implications goes through the detail.

When you sell: capital gains tax on a BTL

A profit on selling a residential investment property is a capital gain, not income. For 2025/26 the residential CGT rates are 18% on gains falling within your remaining basic-rate band and 24% on gains above it (the 24% higher residential rate introduced by Finance (No.2) Act 2024). You deduct the annual exempt amount of GBP 3,000 before charging tax. A UK residential property gain must be reported to HMRC and the tax paid within 60 days of completion.

One point trips up almost every leveraged landlord: the mortgage does not reduce the gain. CGT is charged on the increase in the property's value, less acquisition cost and allowable improvements, not on the equity you walk away with. A property bought with a small deposit and sold years later can produce a large taxable gain even though the net cash after redeeming the mortgage feels modest. Plan disposals around this, not around your loan balance.

Making Tax Digital and your interest records

Making Tax Digital for Income Tax is live. From 6 April 2026 it applies to landlords with gross property income over GBP 50,000; the threshold drops to GBP 30,000 from 6 April 2027 and GBP 20,000 from 6 April 2028. Within MTD you must keep digital records of rental income and expenses, including mortgage interest, and submit quarterly updates to HMRC through compatible software.

For a BTL landlord the discipline that matters most is the interest figure. The Section 24 reducer is based on actual interest paid in the tax year, so estimates and round numbers will not do. Software that pulls from your mortgage statements removes the guesswork and keeps the quarterly updates clean. Start before you are forced to: the landlords who struggle are the ones who try to reconstruct a year of interest the week before a deadline. Our MTD for landlords deadline guide sets out what to put in place.

Common mistakes landlords make with BTL mortgage tax

• Deducting interest from profit. The most common error. A personal landlord cannot deduct interest; it is added back and only generates a basic-rate reducer.
• Treating arrangement and broker fees as ordinary expenses. They are finance costs, so they sit inside the Section 24 restriction, not in the general expenses box.
• Assuming a holiday let still gets full interest relief. The FHL regime ended on 6 April 2025; short lets now follow standard Section 24 rules.
• Claiming relief on all remortgage interest. Relief follows the purpose of the borrowing. Interest on equity drawn for non-business use is not relievable.
• Ignoring the allowance knock-on. Added-back interest can taper your personal allowance or trigger the High Income Child Benefit Charge, often costing more than the headline wedge.
• Leaving MTD interest records to the last minute. The reducer needs accurate interest paid; set up digital records early.

Getting the structure right

The tax tail should not wag the investment dog, but with BTL borrowing the tax is large enough to change the answer on whether a property works at all. The questions worth settling early are: personal name or company, interest-only or repayment, and how any future equity release or sale will be taxed. None of these has a single right answer; they depend on your marginal rate, your portfolio size, and what you want the income to do.

If you want those numbers modelled against your actual position, including whether incorporation would genuinely improve your finance-cost relief, speak to our team. We work with landlords across the UK and structure BTL finance around the tax, not in spite of it.