Mortgage Interest Relief (Property)
UK tax glossary · Last reviewed: April 2026
From April 2020, residential landlords can no longer deduct mortgage interest from rental income as an expense. Instead, they receive a basic-rate tax credit: 20% of the finance costs. This means higher-rate taxpayers are significantly worse off than under the old regime.
The change means rental income is now calculated on gross rent (minus allowable expenses other than finance costs). The 20% credit is then subtracted from the tax bill. A higher-rate taxpayer used to save 40% on interest; they now save only 20%.
The restriction does not apply to furnished holiday lets (though FHL tax rules changed in April 2025), limited company landlords, or commercial property. Many landlords have restructured into limited companies to preserve full interest deductibility, though this involves stamp duty and capital gains complications.
Worked example
Rental income: £12,000. Expenses (exc. interest): £2,000. Mortgage interest: £5,000. Taxable income: £10,000. Tax (40%): £4,000. Less 20% credit on interest: £5,000 × 20% = £1,000. Net tax: £3,000. Old regime: profit = £5,000 × 40% = £2,000. Additional cost: £1,000/year.
Common questions
Does the restriction apply to all types of property loans?
It applies to residential buy-to-let mortgages and other finance costs for residential property. Commercial property finance costs remain fully deductible.
Does the restriction apply to landlords who are basic-rate taxpayers?
Basic-rate taxpayers are broadly unaffected in terms of overall tax, but the gross rental income still counts toward adjusted net income — which can push some into higher-rate territory or affect other reliefs.
Related resources
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.