Is Bridging Loan Interest Tax Deductible? The Answer Depends on Your Structure

The short answer: it depends on purpose, structure and property type

Bridging loan interest is, at its heart, a finance cost. It is the price of borrowing money, and the general rule is that finance costs are deductible where the loan is used for a genuine property business. So the instinctive answer to "is bridging loan interest tax deductible" is yes. The problem is that the instinctive answer is almost never the useful one, because how much relief you actually keep depends on three questions that most guides skip.

Those three questions are: who borrows (an individual, a partnership, or a limited company or SPV), what the property is (a residential dwelling, or commercial premises), and what you do with it (hold it as an investment that produces rent, or trade it as a developer who buys to sell). Change any one of those and the treatment can move from a full deduction at your marginal rate to a restricted basic-rate credit worth half as much. The same interest cost, the same bridge, a very different tax outcome.

This page walks through each situation in turn, then shows the same interest figure treated three ways so the difference is concrete. It covers arrangement and exit fees, the timing of rolled-up interest, and the two cases this guide deliberately does not address: a bridge secured on your own home, and a bridge to pay an inheritance tax bill. For the mechanics of the loan itself (rates, LTV, exit strategies), see the bridging loans guide. This page is about the tax.

Individual landlord, residential property: the Section 24 restriction

If you hold a residential buy-to-let in your own name and bridge its purchase or refurbishment, the interest is a residential finance cost, and it is caught by the Section 24 restriction. That restriction, now written into ITTOIA 2005 s.272A, does something counter-intuitive: it stops you deducting the interest from your rental profit at all. Instead, your profit is taxed in full, and you receive a separate basic-rate tax reducer worth 20% of the finance cost for 2026/27 (rising to 22% from 2027/28).

For a basic-rate taxpayer this is broadly neutral, because 20% relief roughly matches the 20% they would have saved by deduction. For a higher-rate or additional-rate taxpayer it is a real cost: they would have saved 40% or 45% by deducting the interest, and instead they get 20%. On short-term bridging, where the monthly cost is high, that gap can be significant over the life of the loan. The restriction does not care that a bridge is a short-term product rather than a mortgage: what matters is that the loan relates to a dwelling and the borrower is an individual.

The reducer is also capped: it is the lower of 20% of the finance costs, 20% of the property profits, and 20% of your income above the personal allowance, with any unused amount carried forward. We do not re-derive that mechanism here, because it is set out in full on the existing tax pages. If you are an individual residential landlord, read the finance costs under Section 24 guide and the Section 24 tax relief guide for the calculation, and the how to claim mortgage interest guide for the SA105 boxes. The point for bridging is simply that your bridge interest joins your mortgage interest in the restricted pot.

Individual landlord, commercial property: full deduction, no Section 24

Section 24 restricts only dwelling-related loans. Commercial property sits entirely outside it. If you bridge the purchase of a shop, an office, a warehouse or an industrial unit and let it, the interest is deducted from the rental profit in full, at your marginal rate, exactly as all property finance costs were relieved before the restriction was phased in from 2017.

This is why the same individual, borrowing the same amount at the same rate, can get very different relief depending only on whether the security is residential or commercial. A higher-rate taxpayer bridging a commercial unit keeps 40% relief on the interest. Bridging a residential flat, they keep 20%. For a mixed-use building (the classic shop with a flat above), you apportion the interest between the two parts, and only the residential share is restricted. The commercial share stays fully deductible. The mortgage interest deductibility guide sets out the wider residential-versus-commercial line, and the same logic carries to a bridge.

Company or SPV: deductible under the loan relationship rules

A limited company or special purpose vehicle that holds property does not fall within Section 24 at all. Section 24 is an income tax rule for individuals; companies pay corporation tax and follow a different set of provisions, the loan relationship rules in Part 5 of the Corporation Tax Act 2009. Under those rules, interest and the incidental costs of a loan taken for the purposes of the business are deductible in full against the company's profits.

So an SPV that bridges a residential purchase deducts the interest in full, uncapped by any basic-rate restriction. The relief is given at the company's corporation tax rate, which for 2026/27 runs from 19% (small profits rate, taxable profits up to £50,000) to 25% (main rate, profits above £250,000), with marginal relief between those thresholds. Note the subtlety: a company gets a full deduction, but relief is at its corporation tax rate, not at a shareholder's 40% or 45%. The headline advantage over an individual residential landlord is not always a bigger number in a single year, it is that the deduction is complete and uncapped, and it reduces the company's taxable profit pound for pound.

Property trader or developer: a trading finance cost, capitalised or expensed

Everything above assumes you are an investor holding property that produces rent or capital growth. A developer is different. Someone who buys, builds or converts property with the intention of selling it is trading, so the property is stock rather than a capital asset, and the bridge is a loan to fund a trade. The interest is a trading expense, not a property-letting finance cost, and Section 24 has nothing to say about it, because Section 24 applies to letting, not to a development trade.

How the interest hits the accounts depends on the treatment adopted. It is either expensed to the profit and loss account as incurred, or capitalised into work in progress and released against profit when the units are sold. HMRC's guidance on property developers and the interaction with work in progress sits in the Business Income Manual (see BIM51105 onwards), and the general rule that interest on money borrowed for a trade or property business is a revenue cost is at BIM45650 onwards.

The trading-versus-investment question is the fork that decides all of this, and it is a tax judgment property already owns. If you flip a property, refurbish to sell, or convert a commercial building into flats for sale, you may be a trader even if you thought of yourself as an investor. That changes not just the interest treatment but whether the profit is income or a capital gain. We cover the finance side of a development in financing a property development and the tax, which links on to the detailed trading-status pages. Get the status right before you assume the interest treatment.

The same £10,000 of interest, treated three ways

Take one figure and hold it constant: £10,000 of bridging interest incurred in a tax year. Now change only the structure. The table below shows how the relief moves, assuming a higher-rate (40%) individual where an individual is involved, and a company paying the 25% main rate where an SPV is involved.

Structure	How the interest is relieved	Value of relief on £10,000
Individual, residential buy-to-let	No deduction from profit; Section 24 basic-rate reducer at 20% (2026/27)	£2,000 tax reducer
Same individual, commercial let	Full deduction against rental profit at marginal rate (no Section 24)	£4,000 tax saved
SPV / limited company	Full deduction under loan relationship rules, at corporation tax rate	£2,500 tax saved (at 25%)

The residential individual and the SPV land at similar cash figures here, but for opposite reasons: the individual has a restricted credit (20% of the cost, capped), while the SPV has a full and uncapped deduction that simply happens to be relieved at 25%. Push the company's profits into the small-profits band at 19% and the SPV saves £1,900; push the individual into additional rate and the residential reducer stays stuck at 20% while a commercial let would relieve at 45%. The lesson is not that one structure always wins, it is that the interest cost is only half the story. The relief it generates can vary by a factor of two on the same loan, and that belongs in the sum before you commit to a bridge.

Arrangement fees, exit fees and the incidental costs of finance

A bridge rarely costs only interest. There is usually an arrangement or facility fee (often 1% to 2% of the loan), a valuation fee, legal costs, an admin fee and, on some products, an exit fee. The tax treatment of these follows a simple principle: the incidental costs of obtaining loan finance are treated like the interest itself. HMRC sets this out at BIM46435.

So arrangement fees, lender facility fees, the lender's required valuation and broker fees are finance costs. On a commercial loan or a company loan they are deductible in full. On an individual's residential loan they are restricted under Section 24, giving the 20% reducer rather than a full deduction, the same as the interest. Our page on whether mortgage arrangement fees are deductible covers the residential position in detail, and bridging fees follow the same route.

Two distinctions are worth holding. First, the legal and professional costs of the purchase itself (conveyancing, the search fees, stamp duty) are capital, not finance costs. They go into the base cost of the asset for capital gains tax, not against income. Second, the wholly and exclusively test applies: a cost is only an allowable finance cost if it was incurred for the purposes of the property business. A fee bundled up with a personal purpose, or borrowing drawn against a mixed personal and business facility, invites HMRC to disallow the part it cannot trace to the business. Clean records matter more on a fast-moving bridge than on a term mortgage.

Rolled, retained or serviced interest: when relief is actually given

Bridging interest is paid in one of three ways, and the method affects the timing of relief. Serviced interest is paid monthly as it accrues. Retained interest is deducted from the loan at the outset and held by the lender, so you never touch it. Rolled-up interest is added to the balance and settled in one lump when the bridge is redeemed. Because a bridge is short and the security often produces no income during the term, rolled and retained interest are common.

When you get relief for that interest depends on your accounting basis, not on how the lender labels it. Under the accruals basis, interest is relieved as it accrues over the loan term, whether or not it has been paid, so rolled-up interest is relieved across the periods it builds up. Under the cash basis (the default for many smaller individual landlords with rents under the threshold), relief broadly follows payment, so rolled interest is relieved when it is actually settled on redemption. Companies always use the accruals basis. HMRC's Property Income Manual covers finance costs at PIM2054.

This matters because a bridge frequently straddles two tax years. Whether a chunk of rolled interest lands in this year or next, and whether that year is one where you have profit to set it against, can change your bill. If you are on the cash basis and the whole term's interest crystallises on redemption in a single year, you may want to check the interaction with your income that year before assuming the relief is efficient.

What this guide does not cover: own-home bridges and IHT bridging

Two common bridging situations sit outside everything above, and it is important to say so plainly.

The first is a bridge secured on your own home, for example to break a residential chain when you are buying a new house to live in. That is a regulated mortgage contract under the Financial Conduct Authority's rules (see FCA PERG 4 on the regulated-mortgage boundary), it is a consumer product, and the interest is personal borrowing that is not deductible against any business income. This guide is written for property investors, landlords and developers borrowing for a business purpose. If the loan is secured on your own home, this is a regulated product outside the scope of this guide, and you should speak to an FCA-authorised mortgage adviser rather than rely on the treatment here.

The second is a bridge to pay an inheritance tax bill, typically taken by executors or beneficiaries so that probate can be granted before estate assets are sold. That interest relates to settling a tax liability on an estate, not to running a letting or development business, so the property-business relief above does not apply. It is a distinct estate-administration question. If that is your situation, take advice specific to estate administration.

Everything on this page is educational and about tax treatment, not a recommendation to take out any loan. Bridging, commercial and development finance for a business purpose are unregulated products, but their promotion is restricted, so nothing here is an invitation to enter a credit agreement. Verify any current pricing and product terms with a lender or an FCA-authorised broker (rates and fees quoted as ranges are indicative as at July 2026).

Getting the treatment right, and where the tax review fits

The recurring theme is that the deductibility of bridging interest is decided before the loan completes, by the structure you borrow through and the property you borrow against, not afterwards on the tax return. A higher-rate individual bridging a residential flat and a company bridging the same flat can differ by thousands of pounds of relief on identical interest. A developer and an investor buying the same building are taxed on entirely different bases. And rolled interest that lands in the wrong year can waste relief that better timing would have kept.

None of that requires you to become a tax specialist. It does mean the finance decision and the tax decision belong together. If you are pricing a bridge and want the interest treatment, the fee treatment and the timing built into the numbers properly, that is a property tax review, and it is exactly the kind of question the form below is for. Tell us the ownership vehicle, the property type and the purpose, and we will set out how the interest is relieved for your situation. You can also run the loan numbers first with the bridging loan calculator, and model the residential restriction with the Section 24 calculator.