Yes, individual UK landlords can still claim relief for mortgage interest on rental property. The mechanism changed under Section 24 of the Finance (No.2) Act 2015: instead of a full deduction from rental income, individual landlords now receive a 20% basic-rate tax credit against their overall income tax bill. The change was phased in between 6 April 2017 and 5 April 2020 and has been fully in force for six tax years.
This page focuses on the practical claim mechanics for 2025/26: which SA105 box, what costs qualify, the three-way cap that limits the credit, the carry-forward mechanism when the cap bites, and worked examples for three landlord profiles. The comprehensive policy explainer (history, intent, abolition campaigns, political background) is in our Section 24 complete guide; this page is for landlords who already understand the policy and need to know exactly how to claim on the return.
Which SA105 Box to Use
On the SA105 UK Property pages of the 2024-25 form, the dedicated box for residential finance costs is box 44, named "Residential finance costs not included in 'Loan interest and other financial costs'". The 2025-26 form retains the same structure although box numbers may shift slightly.
Process:
- Enter the full finance cost figure in box 44 (or its 2025-26 equivalent). Do not include this amount in the general loan-interest box.
- Do not deduct the figure from rental profit. The whole point of Section 24 is that the deduction does not happen; the credit happens later.
- HMRC's automatic calculation engine then applies the 20% basic-rate credit against your total income tax liability, subject to the three-way cap below.
- The credit appears on the tax calculation summary as "Relief for residential finance costs" or similar wording.
The most common claim error is double-counting: entering interest in box 26 (Loan interest and other financial costs) and box 44. This produces a full deduction against rental profit AND a 20% credit on top, which HMRC's compliance engine flags. The penalty for careless error under FA 2007 Sch 24 is 0%-30% of the additional tax due.
What Counts as a Residential Finance Cost
The legislation (ITTOIA 2005 s.272A-272B) and HMRC's PIM2056 include:
- Mortgage interest on loans used to buy residential rental property.
- Interest on remortgages of property already in the lettings business, capped at the value of the property when it entered the lettings business (the HMRC "withdrawal rule"). Any additional interest above that cap, if the released equity went to personal use, is not allowable.
- Interest on bridging loans used to acquire residential rental property.
- Arrangement fees on residential BTL mortgages, typically spread straight-line over the term of the loan or the fixed-rate period.
- Broker fees charged by mortgage brokers, treated the same as arrangement fees.
- Interest on personal loans demonstrably used for the rental business (renovations, deposit-stretching, working capital). The use of funds is the key evidence.
- Interest on overdrafts on a dedicated rental-business bank account, in proportion to the business use.
And what does not count:
- Capital repayments (only interest counts, never the principal).
- Mortgage protection insurance premiums (allowable as an insurance expense elsewhere on SA105).
- Valuation fees for the lender (often capital and added to base cost for CGT).
- Solicitor and conveyancing fees on the mortgage (capital, added to base cost).
- Interest on loans where the funds were demonstrably used for personal purposes (the holiday home, the new car).
The Three-Way Cap on the 20% Credit
The 20% credit is not unlimited. Under ITA 2007 s.274A, the relievable amount of finance costs in any year is the lowest of:
- Total finance costs incurred in the year.
- Total property business profits for the year (before deducting any finance costs).
- Adjusted total income above the personal allowance (excluding savings and dividend income).
The credit is then 20% of the lowest of those three. Any excess finance cost over that cap is carried forward to the next tax year under s.274A(3) and added to that year's finance costs before re-testing the cap.
Why the cap matters
For most working-age landlords with a regular salary or self-employment income, the third leg of the cap (adjusted total income above the personal allowance) is comfortably above the first leg (finance costs), so the cap is the finance cost figure itself and the full 20% credit applies. The cap bites in three common scenarios:
- High-leverage low-yield portfolios where finance costs exceed property profits.
- Retired landlords with low adjusted total income.
- Years of major repair spend that pushed property profits to nil or below.
Worked Example 1: Standard Higher-Rate Landlord (Cap Does Not Bite)
Tara earns £70,000 PAYE and has two London buy-to-lets. Gross rents £36,000, allowable expenses (excluding finance costs) £4,200, mortgage interest £18,000.
| Item | Amount |
|---|---|
| Gross rents | £36,000 |
| Allowable expenses (non-finance) | (£4,200) |
| Taxable property profit | £31,800 |
| Added to PAYE income for band purposes | £70,000 + £31,800 = £101,800 |
| Income tax on property profit at 40% | £12,720 |
| Section 24 credit (20% × £18,000) | (£3,600) |
| Net tax on rental | £9,120 |
Cap test: lowest of finance costs (£18,000), property profits before finance costs (£31,800), or adjusted total income above personal allowance (£89,230). Lowest is £18,000. Credit = £3,600. Cap does not bite.
Worked Example 2: High-Leverage Portfolio (Cap Bites)
Marcus is retired with a £30,000 private pension and four high-leverage flats. Gross rents £55,000, allowable expenses (non-finance) £8,200, mortgage interest £45,000.
| Item | Amount |
|---|---|
| Gross rents | £55,000 |
| Allowable expenses (non-finance) | (£8,200) |
| Property profit before finance costs | £46,800 |
| Added to pension income for band purposes | £30,000 + £46,800 = £76,800 |
| Income tax on property profit at marginal rates | ~£15,200 |
Cap test: lowest of finance costs (£45,000), property profits (£46,800), or adjusted total income above personal allowance (£64,230). Lowest is £45,000. Credit = £9,000. Marcus uses the full credit this year.
But consider the year following a major repair (£25,000 of works to one flat):
| Item | Amount |
|---|---|
| Gross rents | £55,000 |
| Allowable expenses including £25,000 repair | (£33,200) |
| Property profit before finance costs | £21,800 |
Now the cap test: lowest of £45,000, £21,800, or £64,230. Lowest is £21,800 (property profits). Credit = 20% × £21,800 = £4,360 only. The unrelieved £23,200 of finance cost is carried forward under s.274A and added to next year's finance costs in the re-test.
Worked Example 3: Joint Spouses with Form 17 Election
Priya earns £85,000 PAYE (higher-rate). Her husband Dev earns £18,000 (basic-rate). They own three flats jointly. Gross rents £42,000, expenses £5,500, mortgage interest £22,000.
Default 50/50 treatment (no Form 17 in place):
| Item | Priya (50%) | Dev (50%) |
|---|---|---|
| Property profit before finance costs | £18,250 | £18,250 |
| Marginal rate of tax | 40% | 20% |
| Tax on profit | £7,300 | £3,650 |
| Section 24 credit (20% × £11,000) | (£2,200) | (£2,200) |
| Net tax | £5,100 | £1,450 |
| Combined | £6,550 | |
With Form 17 99/1 in favour of Dev:
| Item | Priya (1%) | Dev (99%) |
|---|---|---|
| Property profit before finance costs | £365 | £36,135 |
| Marginal rate | 40% | 20%/40% (some falls in higher band) |
| Tax on profit | £146 | ~£8,470 |
| Section 24 credit | (£44) | (£4,356) |
| Net tax | £102 | £4,114 |
| Combined | £4,216 | |
Saving of about £2,334 a year from the Form 17 route, achievable for a one-off legal cost of around £400-£600 for the declaration of trust and Form 17 filing. The election only takes effect from the date of Form 17 filing, so timing matters (file before year-end to capture the current year).
Practical Things That Go Wrong
- Double-counting: claiming interest in both the general loan-interest box and the residential finance cost box. Always one box only.
- Including capital repayments: only the interest element counts. The lender's mortgage statement separates the two; use the interest figure.
- Mixing FHL interest with standard residential interest: since 6 April 2025, FHL is no longer a separate regime, so all interest goes through the Section 24 box regardless of whether the property is a long-term let or a short-let.
- Forgetting arrangement fees: spread arrangement fees over the loan term or fixed-rate period and include the annual portion as a finance cost.
- Missing the cap calculation: HMRC's online return handles the cap automatically, but DIY filers using offline spreadsheets must remember to test the three legs and carry forward the excess.
- Not tracking the carry-forward: the unrelieved finance cost from prior years adds to the current year's finance cost in the next year's cap test. Maintain a running cumulative figure year by year.
- Withdrawal-rule trap on remortgage: remortgaging at more than the value of the property when it entered the lettings business and using the released equity for personal purposes disallows relief on the additional interest. Document use of funds.
The Incorporation Trade-Off
Section 24 does not apply to limited companies. A company deducts mortgage interest in full against rental profit before paying corporation tax at 19% to 25%. For a higher-rate landlord with material mortgage interest where the Section 24 cap is biting, the question of whether to move the portfolio into a limited company becomes the central tax-planning decision. The mechanics, including the SDLT cost of getting in (5% additional-dwellings surcharge applied at market value under FA 2003 s.53), are covered in our SDLT on incorporation guide and the wider decision matrix sits in our tax-efficient property investment structure guide.
MTD for ITSA: How the Finance Cost Box Lives in MTD
MTD for ITSA went live on 6 April 2026 for sole-trader landlords above £50,000 of qualifying income (threshold drops to £30,000 from 6 April 2027 and £20,000 from 6 April 2028). For landlords in MTD, the year-end SA105 is replaced by quarterly digital updates plus a Final Declaration. The Section 24 finance cost is reported within the quarterly updates and the Final Declaration in a dedicated finance cost field, with the same three-way cap mechanics applied at year-end.
MTD-compatible software handles the Section 24 calculation automatically provided the finance cost is correctly categorised at the time of entry. The common error is the same one as on the paper return: categorising mortgage interest as a general expense rather than a finance cost. Compliant software flags this if set up correctly.
Carry-Forward When the Cap Bites: Step by Step
- Calculate the year's finance costs in full (including any brought-forward unrelieved amount from prior years).
- Calculate property profits before finance costs.
- Calculate adjusted total income above the personal allowance.
- Take the lowest of (1), (2), (3). This is the "relievable finance cost" for the year.
- Credit = 20% of relievable finance cost. Applied against your income tax liability.
- Carry forward = (total finance costs including b/f) minus (relievable finance cost). Track this figure year by year.
- In the next year, add the b/f to that year's actual finance costs at step 1 and repeat.
There is no time limit on the carry-forward. It is a permanent ratchet held against future years. The accumulated balance is lost only on the landlord's death (it does not transfer to the estate or surviving spouse).