Can I Claim Tax Relief on Mortgage Interest in the UK?

Whether you can claim tax relief on mortgage interest in the UK depends entirely on how the property is used. If you live in it, the answer is essentially no. If you let it out as an individual residential landlord, you get a 20% tax credit on your finance costs rather than a full deduction. If you hold the property through a limited company, or if it is commercial, mortgage interest is still deducted in full against rental profits before tax.

If You Live in the Property

Mortgage interest on your own home is a personal expense with no tax relief attached. The old Mortgage Interest Relief at Source (MIRAS) scheme, which used to give homeowners relief on interest on the first £30,000 of their loan, was abolished from April 2000 and nothing has replaced it.¹ Employees who work from home cannot claim any part of their mortgage interest either, even with a dedicated office room.

Two narrow exceptions exist for owner-occupiers.

Self-Employed Use of Home

If you are self-employed and use part of your home exclusively for your trade, you can claim a proportionate share of your mortgage interest as a business expense.² Only the interest qualifies, not capital repayments. On the cash basis, total deductions for interest and finance costs are capped at £500 a year.

Rent a Room Scheme

If you take in a lodger in your main home and the accommodation is furnished, you can earn up to £7,500 a year tax-free.³ Where someone else also receives letting income from the same property, the threshold halves to £3,750 each. Income below the threshold does not need to be reported.

If your lodger income goes above the threshold, you can either pay tax on the amount above £7,500 with no expenses, or step outside the scheme and report your actual profit after deducting allowable expenses including a share of your mortgage interest. The second method sometimes produces a lower tax bill for homeowners with a large mortgage. You cannot combine the two in the same year.

Individual Residential Landlords: The 20% Tax Credit

Section 24 of the Finance (No. 2) Act 2015 changed how landlords are taxed on their finance costs.⁴ You used to subtract mortgage interest from rental income and pay tax on the profit. Now your full rental income counts as taxable income, and mortgage interest is handled separately as a 20% tax credit against your tax bill.⁵

Say you collect £40,000 in rent and pay £15,000 in mortgage interest. HMRC treats the whole £40,000 as your property income. At 40% tax, that produces a £16,000 bill. You then get a credit worth 20% of the £15,000 in finance costs, knocking £3,000 off. Under the pre-2017 rules you would have been taxed on £25,000 of profit, which was considerably cheaper. Basic-rate taxpayers feel much less impact because the 20% credit roughly matches what the old deduction gave them.

The rule also inflates your reported income. Because HMRC counts gross rent before finance costs, your total income figure can be higher than your actual cash profit, and that pushes some landlords into the higher-rate band who would not otherwise be in it.

How the Credit Is Calculated

The credit is 20% of the lowest of three figures: your total finance costs, your property business profits, or your adjusted total income above the personal allowance of £12,570 for 2026-27.⁶ The credit can reduce your tax bill but never generates a refund on its own.

If your finance costs exceed the figure the credit is calculated on, the unused portion carries forward automatically. Say finance costs are £15,000 but property profits are £13,000. The credit is worked out on £13,000, and the remaining £2,000 rolls into next year’s calculation.⁶

What Counts as a Finance Cost

The 20% credit covers more than mortgage interest. Loan arrangement fees, broker commissions, guarantee fees, and other charges connected to securing the loan all qualify.⁷ Interest on overdrafts and loans used to buy furnishings for a let property also counts.⁵ Legal fees for buying the property are capital in nature and are not deductible as a revenue expense.⁸

Splitting Income Between Spouses

Where a married couple or civil partners jointly own a rental property and live together, HMRC defaults to taxing each of them on half the income no matter what the actual ownership shares are. To be taxed on your real shares, you file Form 17 with evidence such as a declaration of trust showing the unequal beneficial interests.⁹ Where one partner is in the basic-rate band and the other higher-rate, moving more income to the basic-rate spouse reduces the effective bite of the Section 24 restriction.

The £1,000 Property Income Allowance

If your gross property income is £1,000 or less in a tax year, you do not need to report it.¹⁰ Above £1,000, you can deduct the £1,000 allowance from gross income or ignore the allowance and claim actual expenses, but not both. For anyone carrying a mortgage, actual expenses will almost always work out better.

Furnished Holiday Lets After April 2025

The Furnished Holiday Lettings regime used to allow full mortgage interest deduction alongside capital allowances and favourable capital gains reliefs. That regime has been abolished. From 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax, the separate FHL rules no longer apply.¹¹ Individual holiday let owners now sit under the same Section 24 restriction as any other residential landlord, with mortgage interest relief capped at the basic rate of 20%.¹² Company-held holiday lets are not affected by the finance cost restriction, in line with other company-held residential property.

Limited Company Landlords

Section 24 applies only to individuals, trusts, and partnerships. A limited company pays corporation tax on its profits, and mortgage interest is deducted in full as a business expense before that profit is calculated. A company earning £50,000 in rent and paying £20,000 in interest pays tax on £30,000. An individual with the same figures is taxed on the full £50,000 and receives a 20% credit worth £4,000.

Corporation tax runs at 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief between those points.¹³ Even at 25%, full interest deductibility often leaves company landlords ahead of higher-rate individuals.

The catch is getting money back out. The company pays corporation tax on its profits, and you then pay income tax on dividends when you draw them. That double layer erodes the Section 24 advantage for landlords who need the rent to live on. The corporate route tends to work best where profits are being reinvested rather than extracted.

Moving an Existing Property Into a Company

Transferring a property you already own personally into a company is treated as a disposal at market value, potentially triggering capital gains tax. The company then owes Stamp Duty Land Tax on the acquisition. For residential property bought by a company, SDLT rates start at 5% and rise to 17%, and companies buying above £500,000 may face a flat 17% rate rather than the banded scale.¹⁴

Section 162 incorporation relief can defer the capital gains tax where you transfer the whole property business as a going concern in exchange for shares.¹⁵ It does not remove the SDLT, which is often the larger obstacle. Get advice before you move.

Commercial and Mixed-Use Property

Commercial property follows the older, simpler rules. Interest on a loan against a warehouse, shop, or office is a straightforward revenue expense that reduces your taxable rental profit. Section 24 only affects residential property.⁵ The same applies whether you hold the property personally or through a company.

Mixed-use property has to be apportioned. If you own a building with a shop below and a flat above, interest attributable to the commercial part is fully deductible, while the residential portion is restricted to the 20% credit.¹⁶ The split has to be done on a just and reasonable basis, usually by floor area or rental value, and it is one of the more common areas HMRC challenges on property tax returns.

Landlords report all of this through Self Assessment each year, and HMRC can charge penalties for inaccurate returns, with higher rates where an error is deliberate rather than careless.⁵

1
UK Parliament. Mortgage Interest Relief (MIRAS)
2
GOV.UK. BIM47820 – Specific deductions: use of home: specific expenses
3
GOV.UK. HS223 Rent a Room Scheme
4
legislation.gov.uk. Finance (No. 2) Act 2015 – Section 24
5
GOV.UK. Work out your rental income when you let property
6
GOV.UK. Tax relief for residential landlords: how it’s worked out
7
GOV.UK. Deductions: main types of expense: fees for loan finance and similar items
8
GOV.UK. Deductions: main types of expense: legal and professional costs
9
GOV.UK. Declare beneficial interests in joint property and income
10
GOV.UK. Changes to tax rates for property, savings and dividend income
11
GOV.UK. Abolition of the furnished holiday lettings tax regime
12
GOV.UK. Clarification on abolition of the furnished holiday lettings tax regime
13
GOV.UK. Corporation Tax rates, expenses and reliefs
14
GOV.UK. Higher rates of Stamp Duty Land Tax
15
GOV.UK. CG65700 – Transfer of a business to a company: introduction
16
GOV.UK. PIM2056 – Deductions: interest: restriction for income tax purposes from 2017/18: apportionment