Is Mortgage Interest Tax Deductible? UK Rules Explained

Mortgage interest isn’t tax-deductible for most UK homeowners. 

If you own a property and live in it, you can’t claim tax relief on the interest you pay on your mortgage. 

The rules are different for landlords, who may qualify for a limited form of relief on mortgage interest linked to their rental properties.

This guide explains exactly when mortgage interest qualifies for tax relief, which rules apply to landlords, and which property expenses you can claim.

Key points

• Individual landlords get a 20% tax credit, not a full deduction 📉
  Since Section 24 came into full effect in 2020, you can no longer deduct mortgage interest from rental income directly. Instead, you get a basic rate credit worth 20% of your finance costs. If you're a higher rate or additional rate taxpayer, that's a meaningful reduction in relief compared to the old rules.
• Limited companies can still deduct mortgage interest in full 🏢
  Mortgage interest remains a deductible business expense for Corporation Tax when a property is held through a limited company. Still, incorporation comes with costs and complications, so professional advice is recommended before making any structural changes.
• Many other expenses are still fully deductible for landlords 🧾
  Letting agent fees, insurance, repairs, safety certificates, and accountancy costs all reduce your taxable profit. Keeping clear, year-round records means you claim everything you're entitled to, and nothing is missed.
• ANNA makes tax admin straightforward for landlords 🚀
  ANNA automatically records your income and expenses, calculates your tax, and files your Self Assessment to HMRC for free. It also handles quarterly submissions for landlords subject to Making Tax Digital for Income Tax, so no extra software is needed.

What is mortgage interest?

Mortgage interest is the fee a lender charges for lending you money to purchase a property, calculated as a percentage of the outstanding loan balance. It's built into your monthly repayments alongside the capital you're paying back.

For most borrowers, interest makes up a significant portion of early repayments. As the loan balance decreases over time, so does the interest portion of each payment, and more of it goes toward repaying the capital itself.

Why mortgage interest isn’t tax-deductible

The tax system distinguishes between personal spending and business spending. Since your home is primarily for personal use, HMRC treats the cost of a residential mortgage as a personal expense. That’s why the interest doesn’t qualify for tax relief.

Older homeowners may remember a scheme called Mortgage Interest Relief at Source (MIRAS), which reduced the cost of mortgage interest for some borrowers. It was withdrawn in 2000 and hasn’t been replaced.

The rules for landlords

There are two ways landlords can hold property: as an individual landlord, and through a limited company. 

Individual landlords

Individual landlords can't deduct mortgage interest directly from rental income when calculating taxable profits. Instead, they receive a basic rate tax reduction equal to 20% of their qualifying finance costs.

Qualifying finance costs include mortgage interest, loan arrangement fees, and certain other borrowing costs connected to the rental property.

For example, if you pay £5,000 in mortgage interest during the tax year, you don't deduct that £5,000 from your rental income. Instead, you may receive a tax reduction of up to £1,000 (20% of £5,000) applied against your tax bill.

How this affects you depends on your tax rate. For basic rate taxpayers, the 20% credit broadly matches the relief available before the landlord mortgage interest rules changed in 2020.

This is a meaningful difference if you’re a higher rate (40%) or additional rate (45%) taxpayer. Where you'd previously have received relief at your marginal rate, you're now capped at 20% regardless of your Income Tax band.

There are a few other factors to be aware of:

• If your mortgage interest is no longer deducted before profit is calculated, your taxable income appears higher. This can push you into a higher tax band or reduce your Personal Allowance when your total income exceeds £100,000.
• The credit can't reduce your tax bill below zero and can't generate a refund.
• You can carry the unused amount forward to a future tax year even if your bill is too low to absorb the full credit in a given year.
• Section 24 applies only to residential rental properties held by individuals, not commercial property.

Limited company landlords

The rules are different when rental properties are owned through a limited company. 

Mortgage interest is generally treated as a deductible business expense for Corporation Tax purposes, which is why some landlords choose to operate through a company structure.

That said, incorporation isn't straightforward. 

Transferring a property to a limited company is typically treated as a sale for tax purposes, which can trigger a Capital Gains Tax bill. The company may also need to pay Stamp Duty Land Tax (SDLT) on the property's market value at the point of transfer. 

On top of that, mortgage rates for limited companies are often higher than those for individual borrowers, and the way you extract profits from the company (salary, dividends, or director's loans) affects how efficiently the structure works overall. 

Because of these nuances, it's a good idea to seek professional advice before deciding to transfer the property.

What expenses can landlords deduct?

Common allowable expenses for landlords include:

• Letting agent fees
• Property insurance
• Accountant fees
• Legal fees for certain routine matters
• Repairs and maintenance
• Gas safety certificates and electrical inspections
• Utility bills paid by the landlord
• Ground rent and service charges
• Advertising costs for finding tenants

Keep in mind that these count as deductibles only if they relate wholly and exclusively to the rental business.

It’s also important to make the distinction between repairs and improvements, since they aren't treated the same way.

Replacing a broken boiler with a similar model is usually a repair and therefore deductible against rental income. However, building an extension or making significant structural upgrades is typically treated as a capital improvement, which may instead be subject to Capital Gains Tax on a future sale.

What can homeowners claim?

Homeowners may qualify for other property-related tax reliefs, including the Private Residence Relief, the Rent a Room Scheme, and certain Stamp Duty reliefs. 

Private Residence Relief

Private Residence Relief applies to the gain you make when you sell your main home.

Thanks to this relief, many homeowners don’t pay Capital Gains Tax when selling the property they’ve lived in as their main residence.

Rent a Room Scheme

The Rent a Room Scheme allows homeowners and tenants to earn up to £7,500 a year tax-free from renting out a furnished room in their main home.

If your rental income is below the threshold, you usually won't pay tax on it or need to report it to HMRC. If you earn more than £7,500, you can choose to either claim the allowance or report your actual rental income and expenses through Self Assessment.

First-Time Buyers’ Relief

First-time buyers pay reduced SDLT on properties up to £625,000, and no SDLT at all on the first £425,000 of the purchase price if the property qualifies.

If the price is between £425,001 and £625,000, SDLT is charged at 5% only on the portion above £425,000. If the property costs more than £625,000, First-Time Buyers’ Relief doesn’t apply, and standard SDLT rates are used instead.

To qualify, you have to be buying your first home, intend to live in it as your main residence, and not have previously owned residential property. 

If you're buying the property together with other people, you all need to be eligible. If one buyer already owns property, the standard rates apply to both.

🧠 Good to know 

These SDLT thresholds apply only in England and Northern Ireland. Scotland uses the Land and Buildings Transaction Tax (LBTT), and Wales uses the Land Transaction Tax (LTT), each with its own rates and bands. 

How ANNA helps landlords stay on top of their tax

If you're a landlord managing rental income, tracking expenses, and preparing for Self Assessment deadlines, ANNA brings it all into one place. 

Here’s what ANNA offers:

• Automated bookkeeping: Income and expenses are recorded automatically as transactions happen, so you're not piecing records together at the end of the year
• Free Self Assessment filing: ANNA calculates your tax and files your Self Assessment directly to HMRC at no extra cost. If you’ve already filed with someone else, ANNA will refund the filing fee when you switch
• Finance cost credit calculations: ANNA factors in your 20% mortgage interest credit automatically, so nothing gets missed on your return
• Business account: With ANNA’s smart business account, you can track rental income, log expenses, and keep your property finances separate from everything else
• Receipt scanning: Automatic categorisation of receipt photographs ensures your expense records are always up to date
• 24/7 support: If you need help at an inconvenient time, ANNA’s team is always online, not just during office hours

Get started with ANNA today and take the admin out of managing your rental income.