Are Mortgage Arrangement Fees Tax Deductible for Landlords?

Almost every guide online repeats the same line: arrangement fees on a remortgage are deductible, but fees on a purchase are a capital cost. For residential buy-to-let that is simply wrong, and following it can cost you relief or land you with an incorrect tax return. A mortgage arrangement fee is a cost of borrowing, not a cost of buying the bricks and mortar. What actually decides the treatment is two things: whether the let is residential or commercial, and whether you hold it personally or through a company.

Get those two questions right and everything else follows. This guide sets out how HMRC really treats arrangement fees, broker fees and the other charges that come with a buy-to-let mortgage, why Section 24 quietly reduces what most landlords save, and where the genuine planning differences sit.

Are mortgage arrangement fees tax deductible for landlords?

Yes, they attract relief, but the mechanism is not a simple deduction in every case. An arrangement fee is an incidental cost of obtaining loan finance. HMRC's Property Income Manual at PIM2105 allows these costs (described as loan fees, commissions, guarantee fees and fees connected with the security of a loan) as a deduction in computing property business profits under ITTOIA 2005 ss.58 and 59. So far, so generous.

The catch sits in the same manual. That straightforward deduction applies where the costs relate wholly and exclusively to letting property that is not residential. For residential lettings, the rules at PIM2054 redirect these same costs into the Section 24 finance-cost restriction. In plain terms: the cost is still relievable, but for an individual landlord it no longer reduces taxable profit directly. It produces a basic-rate (20%) tax reducer instead.

This is the part the popular "purchase versus remortgage" framing misses entirely. Whether you took the loan to buy the property or to remortgage it later does not change the answer. The fee is a finance cost either way.

The treatment depends on two questions, not on purchase versus remortgage

It is worth being blunt about the myth because it is so widespread. The idea that a purchase arrangement fee is "capital" rests on confusing the loan with the asset. The capital cost of acquiring a property is the price you pay for the property, plus Stamp Duty Land Tax and the conveyancing legal work on the transfer. The arrangement fee is what the lender charges to advance the money. They are different things, and only the former touches your capital gains tax computation.

So forget purchase versus remortgage. The two questions that actually decide the treatment are these.

Situation	How the arrangement / broker fee is relieved	Effective relief
Residential let, held personally	Section 24 finance-cost pool, basic-rate tax reducer (ITTOIA 2005 ss.272A, 272B, 274A)	20%
Residential let, held in a company	Full deduction under the loan relationships regime (CTA 2009 Part 5)	Corporation tax rate, in full
Commercial / non-residential let, held personally	Full deduction against rental profit (ITTOIA 2005 ss.58-59)	Marginal income tax rate, in full
Commercial / non-residential let, held in a company	Full deduction under the loan relationships regime (CTA 2009 Part 5)	Corporation tax rate, in full

The only situation where the relief is restricted is the most common one: residential property held in your own name. That is where Section 24 bites, and where the fee is worth far less in your hands than it would have been a few years ago.

Why Section 24 changes the value of every residential finance cost

Section 24 is fully in force. For residential property held by individuals, all finance costs are pooled and relieved by a 20% tax reducer rather than deducted from profit. Crucially, the definition of finance costs is broad. ITTOIA 2005 s.272B defines the costs of a dwelling-related loan to include interest, anything economically equivalent to interest, and the incidental costs of obtaining the loan (picking up the s.58 definition). Arrangement fees and broker fees fall squarely inside that.

The practical effect is that a higher-rate taxpayer who once saved 40% on an arrangement fee now saves 20%. An additional-rate taxpayer saves even less of the value than they used to. And because finance costs no longer reduce reported profit, a landlord can see their taxable rental income rise, which in turn can affect the personal allowance taper, the High Income Child Benefit Charge, and other thresholds that key off total income. Our complete guide to Section 24 walks through the mechanics, and the page on claiming mortgage interest relief under Section 24 shows how the reducer is calculated on a real return.

There is a forward point worth noting. The Finance Act 2026 has enacted separate property-income rates from 6 April 2027 of 22%, 42% and 47%, applying in England, Wales and Northern Ireland (only Scotland sets its own rates for 2027/28). The Section 24 basic-rate reducer rises to 22% in step, so no new wedge opens up between the rate your profit is taxed at and the rate at which your finance costs are relieved. The relationship that exists today is preserved; the percentages simply move together.

How a worked example actually looks under Section 24

Take a landlord with one residential let held personally, who is a higher-rate taxpayer. In the year, the property produces rental income, against which the usual running costs are deducted, and during the year the landlord remortgages and pays an arrangement fee plus a broker fee.

Under the old rules, those fees and the year's mortgage interest would all have been deducted before arriving at taxable profit, saving tax at 40%. Under Section 24 the sequence is different. The running costs (letting agent, repairs, insurance, and so on) are still deducted to reach rental profit, and that profit is taxed at the landlord's marginal rate. The finance costs (interest plus the arrangement and broker fees) are then pooled and relieved separately as a 20% reduction in the tax bill.

Two consequences follow. First, the fees are worth half what they used to be to a higher-rate taxpayer. Second, the reported profit is higher than it feels, because the finance costs are no longer netted off it. A landlord who is close to a threshold (for example the GBP50,000 higher-rate boundary, or a child benefit or allowance-taper trigger) can be pushed across it by this presentational change alone, even though their cash position has not moved. This is exactly why finance costs need to be modelled, not just recorded, and it is a recurring theme on our full list of landlord tax deductions.

Companies are taxed under a different regime entirely

A company holding rental property does not touch Section 24. Its finance costs, including arrangement fees, broker fees and loan interest, fall under the loan relationships regime in CTA 2009 Part 5 and are deductible in full against profits at the corporation tax rate. There is no basic-rate cap.

That difference is real, and it is one of the things landlords weigh when they look at holding property through a limited company. It is also a point that is routinely oversold. Full relief on finance costs is one line in a much longer ledger that includes the Stamp Duty Land Tax cost of moving property into a company, potential capital gains tax on transfer, double taxation when profits are extracted as dividends, mortgage availability and pricing for company borrowers, and ongoing filing obligations. Finance-cost relief alone almost never justifies incorporation; it is a factor, not the answer. The honest version of this analysis depends on portfolio size, gearing, income level and how long you intend to hold.

What about valuation fees, legal fees and the rest of the closing costs?

The same finance-versus-capital test sorts the other charges that arrive with a mortgage.

• Lender's valuation: if the lender requires it to advance the loan, it is an incidental cost of obtaining finance and follows the finance-cost rules above.
• Legal fees: these split. Work done purely to put the loan and its security in place is a finance cost. Conveyancing on the purchase itself is a capital acquisition cost, which does not go against rental profit but does form part of the CGT base cost when you sell.
• Higher lending charge or product fee: a charge for arranging or pricing the loan is a finance cost, treated the same as the arrangement fee.
• Stamp Duty Land Tax: never a finance cost. SDLT, including the additional-dwelling surcharge on a buy-to-let, is a capital acquisition cost that sits in the CGT computation, not against rental income. The equivalents apply in the devolved nations: Land and Buildings Transaction Tax with the Additional Dwelling Supplement in Scotland, and Land Transaction Tax in Wales.

The fee does not reduce your capital gains tax bill

Because an arrangement fee is a cost of borrowing rather than a cost of acquiring the asset, it does not enter the CGT base cost when you eventually sell. This is the mirror image of the popular myth: people are told the purchase fee is "capital and saves CGT later", when in fact it is a finance cost that has already been relieved (at 20% for an individual, or in full for a company) during ownership.

What does sit in the CGT computation is the purchase price, the SDLT (or LBTT/LTT), the acquisition conveyancing, and qualifying capital improvements. UK residential property disposals are taxed at 18% within the basic-rate band and 24% above it, with an annual exempt amount of GBP3,000. The detail is on our capital gains tax on property guide, but the headline for this page is simple: do not expect the loan fee to feature in it.

Timing, apportionment and getting the claim right

Two practical points decide whether a correct entitlement turns into a correct claim.

Timing. Most individual landlords use the cash basis by default, claiming the fee in the year it is paid. On the accruals basis, a substantial fee that secures a multi-year facility may need to be spread over the term to match the period it relates to. The relief mechanism is unchanged either way: for a residential let held personally it still arrives as a Section 24 reducer.

Apportionment. Relief follows the money. If you remortgage a let property and divert some of the borrowing to private use, only the rental-business proportion of the interest and the arrangement fee qualifies. HMRC expects the split to be evidenced, so keep the loan offer, the fee invoices and a clear record of how the funds were applied.

Reporting these costs under Making Tax Digital

The treatment of the fee does not change under Making Tax Digital, but the discipline around it does. Making Tax Digital for Income Tax is live, with the first landlords and sole traders coming into scope from 6 April 2026 where qualifying income exceeds GBP50,000, followed by GBP30,000 from April 2027 and GBP20,000 from April 2028. In scope, you keep digital records and file quarterly updates rather than a single year-end return.

For finance costs that matters in two ways. The arrangement fee, broker fee and interest need to be captured in compatible software as they arise, not reconstructed at the January deadline, and the Section 24 calculation that converts those pooled costs into a basic-rate reducer happens at the year-end finalisation. Our guide to the Making Tax Digital deadlines for landlords sets out who is caught and when.

Where landlords get this wrong, and where advice earns its keep

The most common error is the one this guide opened with: treating a purchase arrangement fee as a capital cost and a remortgage fee as revenue. The second is forgetting that, for a residential let held personally, none of these finance costs reduce taxable profit at all, which throws out cash-flow planning and threshold calculations. The third is assuming a company "gets full relief" makes incorporation worthwhile without weighing the costs of getting there.

None of these is exotic. They are the predictable result of generic guidance written before Section 24 fully bedded in. A specialist property accountant earns their place by getting the classification right first time, modelling the Section 24 impact on your actual income position rather than treating the fee in isolation, and being honest about whether structural change would help or simply add cost. If you are weighing a remortgage, a portfolio expansion, or a move into a company, that modelling is the work that matters, not the headline fee.