The question of whether mortgage interest is deductible for UK landlords in 2026 has a straightforward but frustrating answer: no, mortgage interest is not fully deductible as it once was. Since April 2020, Section 24 tax restrictions have completely changed how landlords can claim mortgage interest tax relief, replacing the previous full deduction with a more limited 20% tax credit system.

This fundamental shift means that landlords who could once deduct their entire mortgage interest payment against rental income now face significantly higher tax bills. Understanding exactly how these rules work in 2026 is crucial for any UK property investor's financial planning.

How Section 24 Changed Mortgage Interest Relief

Before April 2017, UK landlords could deduct mortgage interest payments in full against their rental income. If you earned £20,000 in rent and paid £8,000 in mortgage interest, you were only taxed on £12,000 of profit.

Section 24 of the Finance Act 2015 gradually phased out this relief between 2017 and 2020. From April 2020 onwards, landlords can no longer deduct mortgage interest as a business expense. Instead, they receive a basic rate tax credit of 20% on their mortgage interest payments.

The impact is substantial. A higher-rate taxpayer who previously saved 40% on their mortgage interest now saves only 20%. For a landlord paying £10,000 annually in mortgage interest, this represents a £2,000 annual increase in their tax bill.

How Mortgage Interest Tax Credit Works in 2026

Under the current system, mortgage interest operates as follows:

  • All rental income is treated as taxable profit (before deducting mortgage interest)
  • Mortgage interest payments generate a 20% tax credit
  • This credit is applied against your total income tax liability
  • The credit cannot exceed 20% of your property profits

Here's a practical example: Sarah owns a buy-to-let property generating £15,000 annual rental income. After allowable expenses (excluding mortgage interest), her profit is £12,000. She pays £8,000 in mortgage interest annually.

Under the old rules:

  • Taxable profit: £12,000 - £8,000 = £4,000
  • Tax at 40%: £1,600

Under current Section 24 rules:

  • Taxable profit: £12,000 (mortgage interest not deducted)
  • Tax at 40%: £4,800
  • Less mortgage interest credit (20% of £8,000): £1,600
  • Net tax: £3,200

Sarah now pays £1,600 more in tax annually – a 100% increase.

Which Landlords Are Affected by Section 24?

Section 24 restrictions apply to:

  • Individual landlords (sole traders)
  • Joint property owners who are individuals
  • Partnerships where all partners are individuals
  • Most residential buy-to-let properties

Section 24 does NOT apply to:

  • Limited companies owning property
  • Commercial property investments
  • Property development or trading businesses
  • Furnished holiday lettings (though this relief was abolished in April 2025)

This is why many landlords have considered incorporating their property businesses into limited companies, where mortgage interest remains fully deductible against rental profits.

The 2027 Property Income Tax Changes

From April 2027, the UK tax system will introduce separate tax rates specifically for property income: 22% basic rate, 42% higher rate, and 47% additional rate. Crucially, the mortgage interest restriction will remain in place – landlords will still only receive a 20% tax credit rather than full deductibility.

This means the Section 24 impact will actually worsen for higher-rate taxpayers. A landlord paying the new 42% rate on property income will still only receive 20% relief on mortgage interest, creating an even larger gap than under current rules.

Can Landlords Claim Any Mortgage Costs?

While mortgage interest faces Section 24 restrictions, certain mortgage-related costs remain fully deductible:

  • Mortgage arrangement fees and broker fees (if for business purposes)
  • Survey costs required by the lender
  • Legal fees for mortgage applications
  • Mortgage exit fees when switching lenders

These costs can be claimed in full against rental income as allowable expenses, separate from the mortgage interest restriction. However, they typically represent a small fraction of total mortgage costs.

Alternative Strategies for UK Landlords

Given the limitations on mortgage interest deductibility, many landlords are exploring alternatives:

Limited Company Incorporation

Moving property into a limited company structure allows full mortgage interest deductibility. Companies pay corporation tax at 19% (small profits rate) or 25% (main rate), and mortgage interest is treated as a normal business expense.

However, incorporation brings other considerations including stamp duty costs, capital gains tax on transfer, and different tax treatment when extracting profits.

Reducing Mortgage Debt

Some landlords are paying down mortgages faster to reduce the Section 24 impact. While this ties up capital, it eliminates the tax-inefficient mortgage interest payments over time.

Portfolio Restructuring

Landlords might consider selling highly mortgaged properties and purchasing others with less debt, though this triggers capital gains tax and transaction costs.

Recording Mortgage Interest for Tax Returns

When completing your 2026 tax return, mortgage interest must be reported correctly:

  • Do not deduct mortgage interest from rental income calculations
  • Report gross rental profits before mortgage interest
  • Claim the mortgage interest tax credit separately
  • Keep detailed records of all interest payments

With Making Tax Digital for Income Tax starting in April 2026, landlords with property income over £10,000 must maintain digital records and submit quarterly updates, making accurate mortgage interest tracking even more important.

Getting Professional Advice

The complexity of Section 24 rules and their interaction with other tax changes means professional advice is often worthwhile. A specialist property accountant can help you understand your specific situation and explore available options.

For landlords considering incorporation or other restructuring, the tax implications can be significant. Professional guidance helps ensure you make informed decisions based on your complete financial picture.

The mortgage interest rules for UK landlords in 2026 remain fundamentally changed from the pre-2017 position. While individual landlords cannot fully deduct mortgage interest, understanding exactly how the current system works – and exploring available alternatives – remains crucial for effective tax planning in today's property investment landscape.