UK Mortgage Interest Relief: What Landlords Need To Know For 2026
- Adil Akhtar
- 2 hours ago
- 20 min read
UK Mortgage Interest Relief 2026: Understanding the Real Picture for Landlords and Property Investors
What Landlords Need to Know About Mortgage Interest Relief in 2026
Picture this: You’ve just opened your tax summary for the year, expecting a tidy profit from your rental property — but HMRC’s calculation shows a surprisingly high bill. The culprit? Mortgage interest relief restrictions that still trip up even seasoned landlords, particularly in the 2025/26 tax year.
As of April 2026, UK landlords cannot deduct full mortgage interest from their rental income. Instead, they receive a 20% tax credit on the interest portion — a rule introduced in stages since 2017 and now fully embedded. Despite repeated calls for reform, the Spring Budget 2025 confirmed no changes to the Section 24 restriction, meaning the current system is here to stay for the foreseeable future.
So, if you’re a property owner, it’s time to sharpen your understanding of how this system really works — and, crucially, how to turn the rules to your advantage.
A Quick Refresher: How Mortgage Interest Relief Used to Work
Let’s rewind a bit. Before April 2020, landlords could deduct mortgage interest (and other finance costs like arrangement fees) directly from rental income. So, if you earned £20,000 in rent and paid £8,000 in mortgage interest, you were only taxed on £12,000.
Now? That £8,000 deduction is gone. You’ll pay income tax on the full £20,000 — and then claim a basic-rate (20%) tax credit on the £8,000 interest.
Here’s what that means in practice.
Scenario | Old System (Pre-2020) | Current System (2025/26 onwards) |
Rental Income | £20,000 | £20,000 |
Mortgage Interest | (£8,000) deductible | Not deductible |
Taxable Profit | £12,000 | £20,000 |
Tax due at 40% (Higher Rate) | £4,800 | £8,000 = £8,000 × 40% = £3,200 tax credit of £1,600 (20% of £8,000) |
Final Tax Bill | £4,800 | £6,400 |
For higher-rate taxpayers, that’s a big difference — you’re effectively paying tax on income you never actually keep. And with mortgage rates still hovering around 4–4.5%, that cost can bite.
Why This Matters More in 2026 Than Ever
Now, let’s think about your situation. In 2026, many landlords are still adjusting to post-pandemic interest rates, and frozen tax thresholds mean more rental income is being dragged into higher tax bands — even if your real income hasn’t risen.
According to HMRC’s 2025 data, over 1.9 million landlords filed self-assessment returns in 2024/25, and around 42% were higher-rate taxpayers once all income was combined. This “fiscal drag” — where pay or rents rise but allowances don’t — can push an ordinary landlord into paying 40% or even 45% tax.
So, while the rule itself hasn’t changed, its impact in 2026 is sharper. You could earn the same rent as two years ago yet owe significantly more tax — purely because inflation and frozen thresholds pull you up the ladder.
Step-by-Step: How to Check If You’re Paying Too Much Tax as a Landlord
None of us loves tax surprises. So let’s make this practical. Here’s a step-by-step guide to see if you’re overpaying due to mortgage interest relief limits:
Log in to your HMRC Personal Tax Account.
○ Check if your tax code reflects any property income (it usually shouldn’t unless you’ve opted in).
○ Review your previous year’s self-assessment summary.
Calculate your total rental income for 2025/26.
○ Include all rent received before 5 April 2026.
○ Deduct allowable expenses (repairs, insurance, letting fees, etc.) but not mortgage interest.
List your mortgage interest paid during the year.
○ Include only the interest portion (not capital repayments).
○ Your lender’s annual statement usually shows this.
Apply the 20% credit.
○ Multiply your total interest by 20%.
○ That’s the amount you can claim against your final tax bill.
Run the full calculation.
○ Add your rental profits to any employment, pension, or dividend income.
○ Work out your tax using 2025/26 bands:
Tax Band (England & Wales 2025/26) | Income Range | Tax Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 – £50,270 | 20% |
Higher Rate | £50,271 – £125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
Apply the tax credit at the end.
○ Only once your full tax is calculated do you subtract the mortgage interest credit.
Tip from my practice: I’ve seen countless clients misapply the 20% credit before calculating tax, rather than after. It’s a small sequencing error that can distort your liability by hundreds of pounds.
How This Affects Your Take-Home Rental Profit
Here’s the reality: if you’re a higher-rate taxpayer, your real return from buy-to-let may have fallen by 10–20% since 2020.
Let’s take a typical example:
Example: Sarah, a Higher-Rate Landlord from Manchester
● Rental income: £24,000
● Mortgage interest: £10,000
● Other expenses: £2,000
● Other income (employment): £60,000
Step 1 – Rental profit (excluding interest): £24,000 – £2,000 = £22,000 taxable.Step 2 – Total income: £60,000 + £22,000 = £82,000 → higher-rate tax applies.Step 3 – Tax on rental income: £22,000 × 40% = £8,800.Step 4 – Mortgage interest tax credit: £10,000 × 20% = £2,000.Final tax on rental income: £8,800 – £2,000 = £6,800.
In the old system, Sarah would have paid £4,800 tax — meaning she’s £2,000 worse off. Multiply that across years and multiple properties, and you can see why many landlords have shifted strategies.
Anecdotal Insight: What I’m Seeing in Practice
In my 18 years advising landlords across the UK, the most common surprise is how mortgage relief interacts with other income sources.
For instance, one client, a part-time consultant with £48,000 in salary and £15,000 in rental income, assumed she was still within the basic rate. But once we added the rental profit, she tipped into the higher-rate band — losing not just higher-rate relief but part of her personal allowance due to crossing the £100,000 threshold after bonuses.
The lesson? Rental profits can quietly push you up the ladder, and the restricted relief compounds the effect. Always calculate across all sources of income — don’t isolate property income on its own.
Quick-Check Worksheet: Are You Missing Out or Overpaying?
Here’s a simple worksheet-style checklist to help you verify your position for 2026:
Check | Action | Outcome if Missed |
Review your total income including rent | Add salary, dividends, self-employment, and rent | Could push you into higher rate without noticing |
Verify your mortgage interest amount | Check lender statements | You might underclaim the 20% credit |
Confirm you’ve excluded capital repayments | Only interest counts | HMRC could reject your claim |
Recalculate using current tax bands | Use 2025/26 thresholds | Prevents under/overpayment |
Check if you’re due a refund | Use HMRC tax calculator | You may reclaim overpaid tax from previous years |
The Subtle Winners and Losers of the Current System
Let’s be honest — this system creates clear winners and losers.
● Winners:
○ Basic-rate taxpayers, who effectively get full relief (since 20% credit matches their tax rate).
○ Corporate landlords, who can still deduct full mortgage interest before calculating corporation tax.
○ Cash-rich investors, who don’t rely on borrowing.
● Losers:
○ Highly leveraged private landlords, especially in higher-rate bands.
○ Landlords with multiple income sources, where rental profits nudge them into higher thresholds.
If you fall into the latter group, it’s time to consider restructuring — whether through incorporation, debt reduction, or portfolio balancing. We’ll explore these strategic moves in the next section.
Smart Tax Planning for 2026: Turning Mortgage Interest Rules to Your Advantage
Why Many Landlords Are Reconsidering Their Structure in 2026
Be honest — if you’ve been in the rental market for years, you’ve probably muttered “I should’ve incorporated” at least once. And you wouldn’t be alone. Ever since Section 24 began biting, a growing number of landlords have moved their portfolios into limited companies, where full finance cost relief still applies.
Now, before you rush to Companies House, let’s think carefully. Incorporation isn’t a magic bullet. It can work brilliantly for some — but disastrously for others, depending on your income, mortgage type, and long-term plans.
In my experience advising landlords from Birmingham to Bristol, those who thrive post-2025 are the ones who treat their properties like businesses, not side hustles. That means strategic planning, proper record-keeping, and yes — occasionally, professional tax advice before making any big moves.
Limited Company Landlords: The 2026 Advantage
Here’s the simple truth: companies can still deduct 100% of mortgage interest as a business expense before calculating profit.
So, for a company, the tax works like this:
Scenario | Individual Landlord | Limited Company |
Rental Income | £24,000 | £24,000 |
Mortgage Interest | (£10,000) not deductible | (£10,000) deductible |
Taxable Profit | £24,000 | £14,000 |
Tax Rate | 40% (personal) | 19%–25% (corporation tax) |
Approximate Tax | £9,600 – £2,000 credit = £7,600 | £14,000 × 25% = £3,500 |
Effective Tax Saving | — | ~£4,000 per year |
However, there’s a twist — profits inside a company aren’t yours until you extract them. Dividends attract their own tax (8.75%–39.35% depending on your bracket), so you’ll need to calculate total post-tax income, not just corporation tax savings.
If you intend to reinvest profits into more properties or upgrades, incorporation shines. If you rely on rental income for living costs, the advantage narrows.
When Incorporation Makes Sense (and When It Doesn’t)
Be careful here — I’ve seen clients trip up when they jump into company ownership without understanding the hidden costs. Let’s break it down.
Good reasons to incorporate:
● You’re a higher-rate taxpayer and hold several mortgaged properties.
● You plan to grow your portfolio or refinance regularly.
● You’re comfortable with director’s admin (accounts, Companies House filings, etc.).
● Your mortgage lender offers competitive company buy-to-let rates (not all do).
Bad reasons to incorporate:
● You own only one or two properties and rely on the rental income personally.
● You’d trigger Capital Gains Tax or Stamp Duty Land Tax when transferring assets.
● You’re close to retirement and don’t plan to expand.
A common myth I hear from landlords is that you can “just put your properties into a company”. In reality, that’s treated as a sale to the company — meaning CGT and SDLT apply at market value, not what you paid years ago. There are limited reliefs (like incorporation relief under TCGA 1992 s.162), but only if your letting activity qualifies as a “business”, which HMRC defines quite narrowly.
In short, incorporation is a strategic decision, not a knee-jerk reaction.
Mortgage Interest Relief and Mixed Income: The Hidden Trap
Now, let’s think about your wider picture. The biggest mistake I see each January is landlords forgetting how property profits interact with other income.
Take Tom, a self-employed web designer from Leeds earning £55,000, plus £12,000 from a small rental flat. Tom assumes he’s still in the basic-rate band — after all, most of his income’s already taxed via self-assessment. But add the rental profit, and suddenly his top slice of income crosses £50,270.
That means his rental income is taxed at 40%, and his mortgage relief is stuck at 20% — halving its effective value.
If Tom had run his flat through a company, the profit would be taxed at 19% (small profits rate) instead, with no restriction on interest. The difference? Almost £1,500 saved on a single property.
This is why, for 2026, the real challenge isn’t just the rule itself — it’s managing the interactions between income sources, tax bands, and credits.
Step-by-Step: Reviewing Your Portfolio’s Tax Efficiency
Let’s walk through a practical five-step process I use in my own practice when advising landlords preparing for the 2025/26 tax return (due January 2027).
List your properties and ownership structure.
○ Note which are held personally and which are company-owned.
○ Include mortgage balances and interest rates.
Calculate each property’s annual profit.
○ Use gross rent minus expenses (excluding mortgage interest).
○ Note whether repairs are capital (improvements) or revenue (maintenance).
Work out mortgage interest totals.
○ Use lender statements to separate capital and interest.
Apply the appropriate tax rule.
○ 20% credit if owned personally.
○ Full deduction if held via company.
Model your next year’s tax.
○ Use current tax bands and forecasted interest rate changes.
○ Test scenarios: What if rates fall 1%? What if your income rises?
Pro Tip: I always recommend running “what-if” forecasts using free HMRC calculators or Excel models. It’s eye-opening to see how a small income increase can push you into losing thousands through higher-rate exposure.
Making Tax Digital (MTD): Why It’s the Game-Changer for Landlords in 2026
Here’s something that deserves your attention: from April 2026, landlords with gross income over £50,000 must join Making Tax Digital for Income Tax Self Assessment (MTD ITSA). Those earning between £30,000 and £50,000 will follow in April 2027.
This isn’t just a change in software — it’s a mindset shift. You’ll need to:
● Keep digital records of rental income and expenses.
● Submit quarterly updates to HMRC via MTD-compatible software.
● File an annual end-of-year statement.
The upside? You’ll see your tax position build in real time, reducing the risk of nasty surprises in January.
But be careful — MTD will expose calculation errors instantly. I’ve seen beta testers caught out when their software misclassified mortgage interest as an expense deduction instead of a 20% credit. So, if you’re switching systems, double-check your category mapping before April 2026.
The Regional Angle: Scottish and Welsh Tax Differences
It’s worth mentioning that not all UK landlords are taxed equally.
● Scottish landlords face five income tax bands, including an Intermediate rate (21%) and Advanced rate (45%). This means the 20% mortgage credit can leave a gap for many mid-income earners north of the border.
● Welsh landlords, however, share England’s thresholds — so the same calculations apply.
Example: A Scottish landlord earning £45,000 from employment and £10,000 rental profit might pay tax at 21%–42%, yet only get 20% relief on interest. The effective rate gap can be 1–2% of total rental income — small, but noticeable over time.
Common Pitfall: The “Phantom Profit” Effect
Here’s a term I use with clients — the phantom profit effect. It’s when you pay tax on income you never actually received because of mortgage interest restriction.
If your mortgage interest eats half your rent, but you’re still taxed on the full amount, your accounts show a “profit” while your bank balance tells a different story.
Many landlords ignore this until cash flow tightens. The smart move?
● Recalculate your true post-tax return on investment (ROI).
● If it’s slipping below 3–4%, reassess whether that property is worth keeping.
● Consider reinvesting in energy-efficient upgrades (which may qualify for future reliefs).
HM Treasury’s 2025 consultation hinted at “green improvement tax incentives” under development — possibly allowing enhanced deductions for eco-upgrades by 2027. Positioning early could pay off.
Action Checklist for 2026: Mortgage Interest Relief Planning
Here’s a quick-reference checklist for landlords to prepare for the 2026 tax year:
Action | When to Do It | Why It Matters |
Review all property ownership structures | Q1 2026 | Identify opportunities for incorporation or restructuring |
Forecast interest payments and rates | Q2 2026 | Budget for potential cash flow impact |
Transition to MTD-compatible records | Before April 2026 | Avoid compliance penalties |
Run multi-income tax simulations | Mid-2026 | Check for band creep or loss of allowances |
Revisit mortgage terms | Anytime 2026 | Secure better rates before refinancing gets pricier |
Seek professional review | Late 2026 | Optimise your overall tax efficiency |
Anecdote from the Field: The Case of the Accidental Higher-Rate Taxpayer
Last year, I advised a client — let’s call him David — who’d owned two flats in Croydon for a decade. He’d never thought much about his taxes, assuming he was a basic-rate payer. But after a salary rise and rental increase, his total income hit £53,000.
He didn’t realise that £3,000 of his rental profit was now taxed at 40%, while his mortgage relief stayed at 20%. The result? A £600 underpayment flagged during his HMRC review — plus interest.
Had he checked his income projections mid-year and made an on-account payment adjustment, he’d have avoided both the shortfall and the penalty.
It’s a simple habit, but one I now drill into every client: run a tax projection at least twice a year. It’s as vital as checking your rental yield.
Making Losses Work for You: Turning Setbacks into Tax Opportunities in 2026
Why 2026 Is the Year to Rethink Loss Strategy
Picture this: You’ve had a tough year — repairs, higher mortgage payments, maybe a gap between tenants. It’s tempting to write it off as a “bad year”. But don’t. Because in 2026, that loss could be the most valuable line on your tax return.
HMRC allows property losses to be carried forward indefinitely, but only against future profits from the same property business (i.e., UK property). It’s one of the most overlooked reliefs among landlords I see..
So, if your 2025/26 figures show a negative balance — let’s say a £3,800 loss — you can carry it forward and offset it when you next make a profit.
Simple enough in theory. But the real gains come from how you record and classify those losses. Let’s break that down.
Classifying Expenses Correctly: Avoiding Common HMRC Rejections
Be careful here — HMRC often rejects “loss claims” because expenses are misclassified. I’ve seen landlords lose out because they recorded capital improvements (like extensions) as revenue expenses, or vice versa.
Here’s a quick table to help you check which expenses are deductible:
Expense Type | Deductible in Year? | Capital or Revenue? | Notes |
Roof repair | Yes | Revenue | If it restores existing structure |
New extension | No | Capital | Adds to property’s value |
Mortgage interest | No (relief via 20% credit) | — | Credit only for individuals |
Letting agent fees | Yes | Revenue | Fully deductible |
Legal fees for lease < 1 year | Yes | Revenue | Longer leases are capital |
Furniture replacement (domestic items) | Yes | Revenue | Under replacement relief rules |
Pro tip: From experience, HMRC is far more likely to accept a well-kept digital record — particularly under Making Tax Digital (MTD). Scanned receipts, dated invoices, and clear notes like “boiler repair – June 2025” make all the difference if you’re ever queried.
Offsetting Losses: Step-by-Step Process for 2026
Let’s go step-by-step through how landlords can claim and carry forward their property losses in 2026.
Step 1: Calculate your annual profit or loss
● Add up rental income from all UK properties.
● Subtract allowable expenses (excluding mortgage capital).
If the result is negative — congratulations, you’ve made a tax loss (strange sentence, but true).
Step 2: Enter the loss on your Self Assessment
● When filing your 2025/26 Self Assessment return, enter the figure in the “UK property losses” section.
● HMRC automatically carries it forward.
Step 3: Keep a record of cumulative losses
● Maintain a rolling figure each year — HMRC doesn’t remind you, so you must track it.
● Example:
○ 2024/25 loss: £2,000
○ 2025/26 loss: £3,000
○ Total carried forward: £5,000
Step 4: Offset against future profits
● In your next profitable year, claim up to the value of your carried-forward losses.
● You can’t set them against employment or investment income — only property profits.
Step 5: Watch for mixed-use complications
If you rent out both residential and furnished holiday lettings (FHLs), these are separate “property businesses”. Losses from standard lettings can’t offset FHL profits (and vice versa).
Real-World Example: Sarah’s Tax Turnaround
Let’s revisit Sarah from Manchester, a client I mentioned earlier. In 2025, she had two flats generating £18,000 rent, but £20,500 in expenses (thanks to a boiler replacement and repainting). Her accountant at the time ignored the £2,500 loss — assumed it didn’t matter.
Fast-forward to 2026: both flats were relet, and she earned £22,000 rent with £12,000 in costs, leaving £10,000 profit. Because she’d kept her loss record, we reduced her taxable profit to £7,500, saving £500 in tax (at 20% relief).
It’s not life-changing, but when you combine careful record-keeping, proper expense classification, and MTD compliance, those small wins add up — especially across multiple properties.
Handling Capital Gains and Exit Strategies
Sooner or later, every landlord faces the “should I sell?” question. The new 2025/26 capital gains landscape makes this trickier but also offers opportunities.
Here’s what you should know:
● Annual Exempt Amount (AEA) remains frozen at £3,000 for 2025/26.
● CGT rates for residential property:
○ 18% for basic-rate taxpayers
○ 24% for higher/additional-rate taxpayers (down from 28% in April 2024 Budget).
Strategic Timing Tip
If you’re planning to sell, consider splitting disposals across tax years — especially if you’re near the basic-rate threshold (£50,270). Selling one flat in March and another in May could save thousands by using two years’ allowances.
I often help clients time sales this way to “slice” their gain between tax years — a legal, underused strategy that still works wonders in 2026.
Advanced Planning: Integrating Property, Pension, and Personal Tax
Now, let’s think bigger — because in 2026, tax efficiency doesn’t stop with your rental portfolio.
If you’re drawing income from several sources (employment, rental, dividends), you need to manage your marginal rate exposure carefully. Here’s a framework I use with higher-income landlords:
Maximise pension contributions — especially before breaching the £100,000 threshold, where the personal allowance tapers off. Every £2 above that reduces allowance by £1.
Use ISAs for savings — tax-free interest reduces overall taxable income.
Time dividend withdrawals from company-owned properties strategically.
Plan spousal ownership splits — if your partner’s in a lower band, reallocating income can cut tax significantly (within legal ownership rules).
Example: Ben and Rachel jointly own a property portfolio generating £40,000 net income. Ben earns £80,000 from employment, Rachel earns £20,000 part-time. By transferring 75% of the property ownership to Rachel (using Form 17 and proper declaration), their overall tax bill drops by over £2,000 annually.
MTD, Automation, and the Rise of Digital Tax Forecasting
It’s worth repeating — by April 2026, if your gross property income exceeds £50,000, you’ll be under Making Tax Digital (MTD) for ITSA. That means quarterly submissions and digital records aren’t optional — they’re the law.
I’ve seen many landlords treat this as an admin burden. But the clever ones use it as a forecasting tool. MTD-compliant software (like QuickBooks or Xero with bridging modules) lets you view your real-time profit, tax exposure, and even carry-forward losses dynamically.
In my practice, I’ve seen this transform decision-making. When clients can see — mid-year — how their interest costs and income changes will affect their January bill, they stop reacting and start planning.
So, if you haven’t already, treat early adoption of MTD software as an investment, not a chore.
Looking Ahead: The 2027 Horizon
The 2025 Budget hinted that by 2027, the Treasury will review “targeted landlord incentives” for improving housing quality and energy efficiency. These may include:
● Enhanced deductions for energy upgrades (like insulation or heat pumps).
● Accelerated capital allowances for corporate landlords investing in sustainable retrofits.
● Possible reintroduction of limited finance relief for low-income landlords (under £30k).
None of this is guaranteed, but I’d keep meticulous energy-related expense records from now on — they may become retrospectively claimable under new schemes.
None of us loves tax surprises, but there’s one thing I’ve learned in nearly two decades advising landlords — the system rewards discipline, not luck.
Whether you own one flat in Derby or ten across London, 2026 will reward those who:
● Understand how interest relief really works;
● Use losses intelligently;
● Leverage digital tools early; and
● Seek timely professional guidance.
Tax can feel abstract — until it isn’t. But once you break it down into actionable steps, it becomes something you can control.
And that, in my book, is the key to thriving as a landlord in post-Section 24 Britain.
Summary of Key Points (2026 Takeaways for UK Landlords)
Mortgage interest relief remains restricted to a 20% tax credit for individuals, but companies still enjoy full deduction.
– Consider company ownership carefully; incorporation suits growth-minded landlords best.
Tax bands for 2025/26 remain frozen, amplifying “fiscal drag” — landlords earning more will feel higher effective tax rates.
Incorporation isn’t automatically beneficial; factor in CGT, SDLT, and mortgage rates before transferring properties.
Making Tax Digital (MTD) starts April 2026 for landlords with £50k+ gross income — prepare now with compatible software.
Losses can be carried forward indefinitely, but only against future property profits; track them carefully.
Record-keeping and expense classification are crucial to avoid HMRC disallowances — go digital, go detailed.
Scottish landlords face higher marginal rates, making the 20% credit relatively less generous than in England or Wales.
Capital Gains Tax (CGT) opportunities exist through timing disposals, using two tax years or joint ownership.
Integrated tax planning — combining pensions, ISAs, and ownership splits — can dramatically improve net returns.
Futureproof your strategy by anticipating eco-incentives and policy shifts towards sustainable lettings from 2027 onward.
FAQs
Q1: Can landlords still claim mortgage interest as an expense in 2026?
A1: Well, it’s worth noting that individual landlords can’t deduct mortgage interest as an expense anymore. Instead, they get a 20% tax credit on the interest paid. However, limited company landlords can still claim full interest as a business expense before tax. This distinction continues to shape how landlords structure their portfolios in 2026.
Q2: How does mortgage interest relief work if someone owns properties jointly with a spouse?
A2: In my experience, couples often miss this trick. If ownership is joint, each partner claims relief in proportion to ownership. But if one spouse is in a lower tax band, you can legally adjust ownership via a “Form 17 declaration” — letting the lower-rate taxpayer take more rental income, saving tax overall. Always ensure the declaration matches beneficial ownership.
Q3: What happens if mortgage interest is higher than rental income?
A3: That’s not as rare as it sounds, especially after rate rises. In this case, you’ll likely record a “property loss.” You can’t offset it against employment income, but you can carry it forward indefinitely to offset future rental profits — a lifeline for landlords weathering 2025–26’s tight margins.
Q4: Are landlords in Scotland affected differently by mortgage interest relief rules?
A4: Yes, they are. Scottish taxpayers face unique income tax bands, so while the 20% credit still applies, many pay 21% or 42% marginal rates. This means the credit doesn’t fully offset the extra tax — effectively making Scottish landlords slightly worse off than their English or Welsh counterparts.
Q5: Can someone claim mortgage interest relief on a property rented to family members?
A5: Only if the rent charged is at market value and the arrangement is genuinely commercial. I’ve seen HMRC challenge cases where rent was heavily discounted for relatives. Keep records like tenancy agreements and bank statements to demonstrate it’s a bona fide rental business.
Q6: What if a landlord refinances a property — is the new mortgage interest still eligible for relief?
A6: It is, provided the borrowed funds remain within the property business. So, if you remortgage to pay for a new roof, that interest qualifies. But if you withdraw equity for personal spending — say, a car or holiday — that portion of interest won’t qualify for the 20% credit.
Q7: Can landlords claim relief on interest from credit cards or overdrafts used for property costs?
A7: It depends on purpose. If you use a business overdraft to pay for a repair or letting agent fee, yes, the interest can qualify for relief. But HMRC expects clear documentation. In practice, I advise keeping a dedicated property account — mixing personal and rental costs muddies the water fast.
Q8: How does mortgage interest relief work for holiday lets in 2026?
A8: Furnished Holiday Lets (FHLs) are treated differently. If your property qualifies as an FHL — meaning it’s available to let for 210 days and actually let for 105 — you can still deduct mortgage interest in full. It’s one of the few remaining reliefs that survived the Section 24 changes.
Q9: Can someone claim mortgage interest relief on a property abroad?
A9: No — not under UK mortgage interest relief rules for residential landlords. Overseas properties fall under foreign property income, which has its own limitations. Some countries offer local reliefs, but you’ll need to claim double taxation credits separately to avoid being taxed twice.
Q10: What if a landlord has both employment income and rental income — how does the 20% relief apply?
A10: The relief only applies against the rental portion of income. So, your PAYE job doesn’t affect the credit calculation directly, but it can push your rental income into higher tax bands. That’s why a mid-year tax projection often prevents surprises when the self-assessment deadline hits.
Q11: Are self-employed landlords affected differently from PAYE landlords?
A11: Not in terms of mortgage interest relief — the 20% rule applies equally. However, self-employed individuals may face cash flow strain if they must make payments on account that include rental profits. I always tell clients to set aside tax monthly — don’t let it creep up in January.
Q12: What if a landlord has one property in a company and one personally owned — how is interest treated?
A12: Great question. The company’s property enjoys full deduction, while the personally owned one only gets 20% credit. You’ll need separate accounts and records for each. It can be efficient, but it complicates bookkeeping — worth doing only if your company’s profit reinvestment justifies it.
Q13: Can landlords offset mortgage interest against capital gains when they sell a property?
A13: No, that’s a common misconception. Mortgage interest affects your income tax position, not capital gains. When you sell, your gain is simply sale proceeds minus purchase cost and qualifying capital expenses. The interest you’ve paid never reduces CGT liability.
Q14: What if mortgage interest is paid late or rolled up in arrears — can you still claim relief?
A14: Yes, but only in the tax year when the interest is actually paid, not when it accrues. I’ve seen clients trip up here — HMRC follows the “paid date” rule strictly. So, if your lender capitalises arrears, relief only applies once you’ve settled that amount.
Q15: How does mortgage interest relief affect landlords on universal credit or other benefits?
A15: This is an overlooked area. Claiming rental income affects means-tested benefits, but mortgage interest relief doesn’t increase your taxable income — it just limits your deductions. Always report your net rental profit figure (after allowable expenses and credits) to avoid benefit miscalculations.
About the Author:
Adil Akhtar, ACMA, CGMA, serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than three years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
Disclaimer:
The content provided in our articles is for general informational purposes only and should not be considered professional advice. Pro Tax Accountant strives to ensure the accuracy and timeliness of the information but makes no guarantees, express or implied, regarding its completeness, reliability, suitability, or availability. Any reliance on this information is at your own risk. Note that some data presented in charts or graphs may not be 100% accurate.
We encourage all readers to consult with a qualified professional before making any decisions based on the information provided. The tax and accounting rules in the UK are subject to change and can vary depending on individual circumstances. Therefore, PTA cannot be held liable for any errors, omissions, or inaccuracies published. The firm is not responsible for any losses, injuries, or damages arising from the display or use of this information.
.png)