The simple answer is yes, you can still claim mortgage interest on rental property in the UK — but the rules changed dramatically under Section 24. Rather than deducting mortgage interest directly from rental income, individual landlords now receive a 20% tax credit on their mortgage interest costs.

This change, fully implemented since April 2020, significantly impacts how mortgage interest rental income calculations work. Many landlords find their effective tax rate has increased, particularly higher rate taxpayers who previously benefited from 40% relief on mortgage costs.

How Mortgage Interest Relief Works Now Under Section 24

Section 24 replaced the traditional deduction system with a tax credit approach. Here's how it works:

  • Step 1: Calculate your rental profit without deducting mortgage interest
  • Step 2: Add this profit to your other income to determine your tax rate
  • Step 3: Pay income tax on the full rental income (including the portion that goes to mortgage interest)
  • Step 4: Claim a 20% tax credit on your mortgage interest payments

For example, if you have £2,000 monthly mortgage interest payments (£24,000 annually), you'll receive a £4,800 tax credit (20% of £24,000). However, you must pay income tax on rental income that previously would have been reduced by the full £24,000 deduction.

What Counts as Mortgage Interest for Tax Relief

Not all mortgage-related costs qualify for the 20% tax credit. HMRC defines mortgage costs tax deductible items specifically:

Qualifying Costs

  • Interest on mortgages and loans used to purchase rental property
  • Interest on loans for property improvements or repairs
  • Interest on remortgaging for property purposes
  • Mortgage arrangement fees (amortised over the loan term)

Non-Qualifying Costs

  • Capital repayments on the mortgage
  • Mortgage protection insurance
  • Valuation fees
  • Legal fees for mortgage arrangement

These non-qualifying costs remain fully deductible expenses against rental income, not subject to the Section 24 restriction.

Impact on Different Tax Rates

The Section 24 changes affect landlords differently depending on their overall tax position:

Basic Rate Taxpayers (20%)

If your total income (including rental profit) keeps you in the basic rate band, Section 24 has minimal impact. You previously got 20% relief on mortgage interest, and you still get 20% relief through the tax credit.

Higher Rate Taxpayers (40%)

Higher rate taxpayers face the biggest impact. Previously, they could deduct mortgage interest at 40%, but now only receive 20% relief. For a landlord with £20,000 annual mortgage interest:

  • Before Section 24: £8,000 tax relief (40% of £20,000)
  • After Section 24: £4,000 tax credit (20% of £20,000)
  • Annual impact: £4,000 additional tax

Additional Rate Taxpayers (45%)

The impact is even more severe for additional rate taxpayers, who previously benefited from 45% relief but now only receive 20%.

The Tax Rate Trap: Pushed Into Higher Brackets

One of the most significant unintended consequences of Section 24 is pushing landlords into higher tax brackets. Because mortgage interest no longer reduces taxable rental income, many landlords find themselves crossing tax thresholds.

Consider a landlord with:

  • Salary: £45,000
  • Rental income: £15,000
  • Mortgage interest: £8,000
  • Other property expenses: £2,000

Before Section 24: Taxable rental profit was £5,000 (£15,000 - £8,000 - £2,000). Total taxable income: £50,000 (basic rate).

After Section 24: Taxable rental profit is £13,000 (£15,000 - £2,000). Total taxable income: £58,000 (higher rate). The landlord now pays 40% tax on rental income but only receives 20% relief on mortgage interest.

Company Ownership: Avoiding Section 24

Limited companies are not subject to Section 24 restrictions. Company-owned rental properties can still deduct mortgage interest fully against rental income.

For a property company:

  • Mortgage interest remains a fully deductible business expense
  • Corporation tax rates are 19% (small profits) or 25% (main rate)
  • No restriction on mortgage interest relief

However, incorporation brings other considerations including stamp duty on property transfer, capital gains tax on disposal, and corporation tax compliance obligations.

Record Keeping for Mortgage Interest Claims

Accurate record keeping is essential for claiming mortgage interest relief:

Essential Records

  • Annual mortgage statements showing interest paid
  • Loan agreements and mortgage deeds
  • Evidence that loans were used for property investment
  • Records of any loan restructuring or refinancing

Mixed-Use Properties

If a loan is used partly for property investment and partly for personal purposes, only the business portion qualifies for relief. You must apportion the interest based on the loan amounts used for each purpose.

With Making Tax Digital for Income Tax becoming mandatory from April 2026, digital record keeping becomes increasingly important.

Future Changes: Property Income Tax Rates from 2027

From April 2027, the UK introduces separate tax rates specifically for property income:

  • Basic rate: 22% (instead of general 20%)
  • Higher rate: 42% (instead of general 40%)
  • Additional rate: 47% (instead of general 45%)

The 20% mortgage interest tax credit remains unchanged, meaning the gap between tax paid and relief received will widen further for higher and additional rate taxpayers.

Strategies for Managing Section 24 Impact

Income Splitting

Joint property ownership with a spouse or partner in a lower tax bracket can help manage the overall tax burden. The rental income and mortgage interest relief can be split proportionally.

Pension Contributions

Increasing pension contributions can help keep overall income within the basic rate band, reducing the Section 24 impact.

Timing Disposals

Consider timing property sales to avoid years with high rental income, particularly where this pushes you into higher tax brackets.

Understanding these strategies requires careful planning with a specialist property accountant who can model different scenarios and their tax implications.

Common Misconceptions About Mortgage Interest Relief

Several misconceptions persist about how mortgage interest relief works:

  • Myth: You can't claim any mortgage costs anymore
  • Reality: You still get 20% relief through the tax credit system
  • Myth: Interest-only mortgages are better for tax
  • Reality: Only the interest portion ever qualified for relief anyway
  • Myth: Refinancing costs don't qualify
  • Reality: Interest on refinancing for property purposes still qualifies

Working with Professional Advisers

The complexity of Section 24 and its interaction with other tax rules means professional advice is often worthwhile. A qualified property accountant can help you:

  • Calculate the precise impact of Section 24 on your portfolio
  • Model different ownership structures
  • Plan timing of acquisitions and disposals
  • Ensure compliance with rental income tax rules

The cost of professional advice is often more than offset by the tax savings and compliance peace of mind it provides.

Conclusion

You can still claim mortgage interest on rental property in the UK, but Section 24 fundamentally changed how this works. Individual landlords now receive a 20% tax credit rather than full deduction against rental income.

The impact varies significantly based on your tax rate and overall income position. Higher rate taxpayers face the greatest burden, while basic rate taxpayers see minimal change. Company ownership remains an option to avoid these restrictions entirely.

Given the complexity and the upcoming property income tax rate changes from 2027, getting specialist advice is increasingly important for optimising your property tax position.