For individual residential landlords, mortgage finance costs generally receive a basic-rate tax reduction rather than a full deduction from rental profit. The reduction is subject to limits. Give the accountant the interest and finance-cost figures, not just the total mortgage payments.
What this page covers (and what it does not)
This is the finance-cost / mortgage-interest treatment for residential lets. It is not a full landlord Self Assessment checklist (see Self Assessment for landlords 2025/26) and not the Making Tax Digital landlord guide (MTD for landlords 2026/27).
How the tax reduction works
GOV.UK explains that the reduction is the basic rate value (currently 20%) of the lower of:
- finance costs not deducted from rental income in the tax year (plus any finance costs brought forward)
- property business profits for the year (after using brought-forward losses)
- adjusted total income that exceeds your personal allowance (after losses and reliefs, excluding savings and dividends income)
The tax reduction cannot be used to create a tax refund. If the limiting figure is property profits or adjusted total income rather than finance costs, unused finance costs can be carried forward for later years’ basic-rate reductions.
What counts as a finance cost
On GOV.UK’s rental-income guidance, restricted finance costs include interest on mortgages, loans (including loans to buy furnishings), and overdrafts, plus related incidental costs of getting or repaying finance. If a loan covers both residential and commercial property, or mixes trade and residential use, you need a reasonable split. Only the residential share is restricted in this way.
GOV.UK also notes that UK and non-UK resident companies are outside this individual restriction and continue to get relief for interest in the usual way for companies. This article is aimed at individual landlords.
Why higher-rate landlords feel it more
Because residential finance costs no longer reduce taxable property profit in full, your total income for rate-band purposes can look higher even when cash interest has not changed. Relief then comes as a 20% tax reducer, not as a deduction at your higher or additional rate.
Illustrative only (adapted from GOV.UK’s published case-study style; GOV.UK’s own examples use older personal allowance and band figures for teaching, so treat them as mechanics, not current thresholds): a landlord with other income plus rental receipts can be pushed into a higher band once finance costs stop wiping profit down. The 20% reducer then covers only part of the cash interest. Your accountant needs the full interest figure either way.
Records worth keeping
- Mortgage or loan interest statements for the tax year (interest element, not the full repayment)
- Arrangement or exit fees tied to the finance
- Notes if borrowing was increased or split across properties
- Any unused finance costs brought forward from earlier years
If you want help preparing the property pages that include this relief, start from TaxSimba’s rental income tax service page and register for accountant-led Self Assessment support. We do not invent allowable finance costs or guarantee a particular tax bill. Confirm current GOV.UK wording for your lets before you file.
Check the home nation used for your tax calculation
Tell the accountant whether you live in England, Scotland, Wales or Northern Ireland, and about any moves during the tax year. Scottish rates differ for wages, pensions and most other taxable income; savings and dividends use UK rules. Welsh rates are set separately. Use the rules for the relevant year and your actual taxpayer status.
See Scottish Income Tax and Welsh Income Tax. These differences do not make a London address or an England-only earnings example appropriate for everyone.
Check a finance-cost figure rather than a bank total
Illustrative preparation example.
Your rental pack shows £8,000 of mortgage payments but no interest certificate. Ask for the lender’s breakdown before calculating finance-cost relief. Keep any brought-forward restriction schedule too, because the current bank total does not explain relief available from earlier years.
Check: What amount is interest, and what earlier restricted costs remain available?
| Check | Practical action |
|---|---|
| Interest or repayment of borrowed capital? | Obtain the lender's breakdown and exclude capital repayments from the interest figure. |
| Individual residential let or another structure? | Confirm the owner and use of borrowing before applying the residential restriction. |
| Any unused finance costs from earlier years? | Bring the carry-forward schedule so relief is considered consistently. |
Is relief always 20% of everything paid to the lender?
No. Capital repayments do not qualify as interest and the finance-cost reduction is subject to statutory limits. Supply the detailed figures.
Does the borrowing have to be on the rented property's mortgage?
The purpose and use of borrowing matter. Provide the loan history and how funds were used rather than deciding from the security alone.
Download a checklist for this guide
- Collect annual interest and fee statements.
- Separate interest from capital repayments.
- Describe the purpose and use of each loan.
- Record mixed residential, commercial or private use.
- Locate prior unused finance-cost schedules.