Is Mortgage Interest Deductible for UK Landlords in 2026?

Is mortgage interest deductible? The answer by owner type

The reason this question keeps coming up is that the word "deductible" stopped being accurate for personal landlords in 2020, but the habit of asking it did not. If you bought before 2017 you remember subtracting the full interest figure from your rent and paying tax on what was left. That route is closed for anyone who owns residential property in their own name.

What replaced it is a credit, not a deduction, and the distinction is the whole story. A deduction comes off your profit before tax is worked out. A credit comes off the tax bill afterwards. For a basic-rate taxpayer the two routes happen to land in the same place, but for a higher-rate landlord they do not, and that is exactly why mortgage interest relief is described as "restricted for individual landlords". Companies were never inside the restriction, so for them nothing changed.

Dimension	Individual landlord	Limited company
Interest deducted from rental profit?	No (since April 2020)	Yes, in full before tax
Relief mechanism	20% basic-rate tax credit (rising to 22% from 6 April 2027)	Ordinary deductible expense
Tax the relief reduces	Income tax	Corporation tax
Cap on the relief?	Yes, lower of three figures; excess carries forward	No cap on the deduction
Higher-rate landlord penalty?	Yes, relief sits below the 40%/42% rate	No gap between relief and rate
Governing rule	ITTOIA 2005 s.272A and s.274A (Section 24)	Corporation tax loan-relationship and property-business rules

If you only take one thing from this page, take the top-right versus top-left cells: the same mortgage, on the same property, is treated completely differently depending on whether a person or a company is on the title. Everything below is detail around that single fact.

How Section 24 changed the rules on tax relief on mortgage interest

Before April 2017, a residential landlord could set the entire mortgage interest payment against rental income. Rent of £20,000 with £8,000 of interest left £12,000 of taxable profit, taxed at whatever rate applied to the landlord. Relief was, in effect, given at your marginal rate, so a 40% taxpayer got 40% back.

That ended with section 24 of the Finance (No. 2) Act 2015, which inserted the restriction into the Income Tax (Trading and Other Income) Act 2005. (It is a common slip to cite the "Finance Act 2015" here; the landlord measure is in the second Finance Act of that year, c. 33.) The change was phased deliberately so nobody hit the full effect overnight:

• 2017-18: 75% of interest still deductible, 25% as the new credit
• 2018-19: 50% deductible, 50% as the credit
• 2019-20: 25% deductible, 75% as the credit
• 2020-21 onwards: 0% deductible, 100% as the credit

Since 6 April 2020 the taper has been complete. Under ITTOIA 2005 s.272A no deduction is allowed for the costs of a dwelling-related loan when an individual works out residential property profits. The interest does not disappear from your tax position, it just moves from the profit calculation to a separate credit.

What individual landlords get instead: the 20% basic-rate tax credit

The replacement is a tax reducer set out in ITTOIA 2005 s.274A and calculated under s.274AA. In plain terms, you work out the tax on your rental profit (with no interest deducted), then knock 20% of your finance costs off the resulting bill. That 20% is the "20 tax credit on mortgage interest" people search for, and it is the figure that rises to 22% from April 2027.

There is a cap. The relief is the lower of three measures: 20% of the finance costs, 20% of the property profits for the year, or 20% of your total income above the personal allowance. If your finance costs are capped in a low-profit year, the unrelieved part is not lost; it is carried forward as a brought-forward amount and can be relieved in a later year. HMRC publishes its own worked examples of the cap and the carry-forward in its guidance on how the restriction is worked out. We deliberately do not re-walk the box-by-box arithmetic here, because our guide to claiming mortgage interest on a rental property takes you through the SA105 entries and the three-part cap with full worked figures.

Why a higher-rate landlord feels the credit as a penalty

The credit is the same 20% for everyone, but it does not feel the same to everyone, and the worked figures show why. Take a landlord with £20,000 of rent, £4,000 of allowable expenses other than interest, and £8,000 of mortgage interest. Profit before interest is £16,000.

A basic-rate landlord pays 20% on the £16,000 (£3,200), then takes the 20% credit on the £8,000 of interest (£1,600), for a net £1,600. That is identical to what the old full-deduction route would have given, because their tax rate and their relief rate both sit at 20%.

A higher-rate landlord pays 40% on the £16,000 (£6,400), then takes the same £1,600 credit, for a net £4,800. Under the pre-2017 rules they would have been taxed on £8,000 of profit at 40% (£3,200). The £1,600 difference is the Section 24 penalty, and it exists purely because relief is fixed at the basic rate while the tax is charged at the higher rate. The more you borrow and the higher your rate, the wider that gap.

There is a second, quieter effect. Because profit is now measured before interest, the headline rental figure on your return is larger than your real economic profit. That inflated figure can tip income into the higher-rate band, or erode the personal allowance above £100,000, even when your actual cash profit is modest. It is the reason some landlords who think of themselves as basic-rate find a slice of their income taxed at 40%.

Why limited companies can still deduct mortgage interest in full

A company that holds buy-to-let property is not an individual, so Section 24 simply does not reach it. The company treats mortgage interest as an ordinary financing cost and deducts it against rental profit before corporation tax is charged. There is no 20% ceiling, no three-part cap and no carry-forward mechanism to manage, because the interest never left the profit calculation in the first place.

This is why a landlord with heavy borrowing and a higher personal tax rate keeps coming back to the company question: inside a company, £1 of interest reduces taxable profit by £1, where in personal hands it only ever earns relief at the basic rate. The trade-offs (the cost of getting property into a company, the tax on extracting profits, and ongoing compliance) are real and sit outside this page, but the deductibility point is unambiguous. Our complete guide to the buy-to-let limited company sets out the full picture.

The relief rate by tax year: 2026/27 versus 2027/28

The substance of Section 24 is unchanged for 2027, but the rate it tracks is moving. At the Autumn Budget 2025 (26 November 2025) the government announced separate income tax rates for property income, and these were enacted by the Finance Act 2026 (c. 11, Royal Assent 18 March 2026, ss.6 to 7 and Schedule 1). From 6 April 2027 property income in England, Wales and Northern Ireland is taxed at 22%, 42% and 47%. Scotland is carved out of these 2027/28 property rates and keeps its own Scottish income tax bands.

Tax year	Property income basic rate	Section 24 finance-cost reducer	New wedge for a basic-rate landlord?
2026/27	20% (rates 20/40/45)	20%	No
2027/28 onwards (England, Wales, NI)	22% (rates 22/42/47)	22% (Finance Act 2026 Schedule 1)	No, the reducer tracks the 22% rate

The detail that matters: Schedule 1 raises the reducer from 20% to 22% in step, by changing s.274AA to use a "property basic rate" rather than the ordinary basic rate. Because the credit moves with the rate, no new basic-rate wedge opens. A higher-rate landlord's gap stays at 20 percentage points (42 minus 22), exactly as it is now (40 minus 20). The only genuine change is a flat 2 percentage point rise on net rental profit after finance costs. For a fuller treatment of the 2027 position see our guide to the 2027 property tax rates and Section 24 relief, and the specific impact on higher-rate taxpayers from 2027.

Which landlords does Section 24 apply to?

The restriction is about who owns the property, not what kind of property it is. It applies to:

• Individual landlords letting residential property in their own name
• Joint owners who are individuals, including spouses and civil partners
• Partnerships where every partner is an individual
• Trustees, with the relief given through the trust rules

It does not apply to:

• Limited companies, which deduct interest in full
• Commercial property let by individuals, where the interest stays fully deductible
• Genuine property trading or development businesses, as distinct from investment lettings

Furnished holiday lettings used to sit outside Section 24 and enjoyed full interest relief. That carve-out ended: the furnished holiday let regime was abolished from 6 April 2025, and former FHL properties are now taxed as ordinary residential lets, so their mortgage interest is caught by the standard Section 24 restriction. If you ran an FHL on full relief until April 2025, this is the change most likely to have raised your bill. For the mechanics of how the restriction is applied to a residential let, our Section 24 restriction guide and calculator is the place to go.

Mortgage costs you can still deduct in full

Section 24 restricts the interest, and only the interest. The costs of arranging and servicing the borrowing remain fully deductible against rental income for individuals, treated as ordinary revenue expenses:

• Mortgage arrangement fees and broker fees, where the loan is for the rental business
• Lender survey or valuation fees required to get the mortgage
• Legal fees relating to the loan itself
• Exit fees or early-repayment charges when you switch lender

These are usually a small slice of the total compared with the interest, but they are genuine deductions and worth recording separately so they are not accidentally swept into the restricted interest figure. Our explainer on how tax relief on mortgage interest works for rented property distinguishes the two cleanly.

Personal versus company: which route is more tax-efficient?

The decision matrix above answers the deductibility question, but a route is not "better" on deductibility alone. The honest senior-adviser view is that the company route stops the interest restriction biting, and that benefit grows with the size of your borrowing and your personal tax rate. A landlord at the additional rate with a heavily mortgaged portfolio is the clearest case for looking hard at a company; a basic-rate landlord with little or no mortgage may gain almost nothing and take on cost and admin for no reason.

Set against the deductibility gain are the frictions of getting there: the cost of moving property into a company, capital gains tax on the transfer of personally held property, the extra stamp duty land tax that usually applies on an additional dwelling, and the corporation tax plus dividend or salary cost of taking profits back out. None of these are reasons to dismiss incorporation; they are reasons to model your own numbers before acting. Our 2027 tax rates and the incorporation decision guide works through how the new property rates tilt that calculation.

Recording rental income and mortgage interest correctly under MTD

Because interest is no longer a deduction, the way you record it on a personal return changed too. You report gross rental profit before any finance cost, and you claim the 20% reducer separately. Subtracting interest in the income section, out of old habit, understates your profit and gets the credit wrong, which is one of the most common errors HMRC sees on amended returns.

This matters more now that Making Tax Digital for Income Tax is live. Quarterly digital reporting begins for landlords with qualifying income over £50,000 from 6 April 2026, falling to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. Clean, separated records of interest versus other finance costs make those quarterly updates straightforward. Our guide to the Making Tax Digital April 2026 deadline for landlords covers who is in scope and when.

Getting specialist advice

Most landlords do not need advice on the simple cases; a single basic-rate let with a small mortgage is rarely worth a second opinion. The value shows up at the edges: a portfolio where the three-part cap is wasting relief, an FHL that has just dropped into Section 24, a higher-rate landlord weighing a company, or a return where the reducer has been recorded as a deduction for years. Those are the situations where a specialist review tends to pay for the cost of looking.

If your position is one of those, a property accountant can model the personal versus company comparison on your actual figures, check whether you are carrying forward relief you could use, and make sure your records are MTD-ready before the threshold reaches you.