Tax treatment is an important consideration for anyone owning a buy-to-let property, particularly where the property is mortgaged.
The rules around mortgage interest changed significantly for individual residential landlords following the introduction of the finance cost restriction, commonly associated with Section 24. Individual landlords can no longer simply deduct all of their mortgage interest from rental income when calculating taxable property profits.
However, that doesn’t mean there is no tax relief available on buy-to-let mortgage interest.
In this guide, we explain how the current rules work, who they affect, how individual and limited-company landlords are treated differently, and why the tax structure of a property should be considered alongside the mortgage options available.
Important: Oportfolio provides mortgage advice, not tax advice. The information below is a general explanation of the current rules. Individual tax circumstances can be complex, so landlords should obtain appropriate tax advice before making decisions about property ownership or taxation.
Quick Answer: Can Landlords Claim Tax Relief on Mortgage Interest?
Yes, but the treatment depends on how the property is owned.
For individual residential landlords subject to Income Tax, mortgage interest and other qualifying finance costs are generally no longer deducted from rental income when calculating taxable property profit. Instead, relief is currently given through a basic-rate tax reduction.
For the 2026/27 tax year, this is generally calculated at the 20% basic rate, subject to HMRC’s calculation rules and limits. From the 6th of April 2027, separate property-income tax rates are due to take effect and residential finance-cost relief is due to be calculated at the new 22% property basic rate.
Companies are treated differently. HMRC confirms that the residential finance-cost restriction does not apply to companies in the same way, with financing costs instead dealt with under Corporation Tax rules.
2027 landlord tax change: From the 6th of April 2027, separate property-income tax rates of 22%, 42% and 47% are due to take effect, with residential finance-cost relief calculated at the new 22% property basic rate.
What Is Buy-to-Let Mortgage Tax Relief?
Landlords can incur significant financing costs when purchasing and owning rental property.
The most obvious is mortgage interest.
Historically, individual residential landlords could generally deduct mortgage interest from their rental income when calculating the profit on which Income Tax was charged.
Those rules changed gradually from April 2017, with the restriction fully implemented from the 6th of April 2020.
Affected individual residential landlords now calculate their property profits without deducting restricted finance costs and may instead receive a tax reduction based on those costs.
HMRC describes this as a restriction of Income Tax relief on residential property finance costs to the basic rate.
Can Landlords Deduct Mortgage Interest From Rental Income?
For an individual residential landlord subject to the finance-cost restriction, mortgage interest generally cannot simply be deducted from rental income as an allowable expense when calculating taxable property profit.
Instead, qualifying finance costs are considered separately when calculating the landlord’s tax reduction.
This distinction matters because it can result in a landlord having a higher taxable property profit than they might expect if they simply subtract their mortgage interest from their rent.
Companies are treated differently, which we’ll cover later.
How Does the 20% Mortgage Interest Tax Reduction Work?
You will often hear the current system described as landlords receiving a:
“20% tax credit on their mortgage interest.”
That’s a useful shorthand, but it isn’t quite the complete calculation.
For the 2026/27 tax year, the tax reduction is currently based on the 20% basic rate.
However, HMRC’s calculation rules mean the amount isn’t necessarily as simple as taking your annual mortgage interest and multiplying it by 20%.
The tax reduction is subject to limits and is based on the relevant amount under HMRC’s rules.
That is why two landlords with similar mortgage-interest costs could potentially experience different tax outcomes depending on their wider circumstances.
Where finance costs cannot all be relieved in a particular tax year, amounts may also potentially be carried forward subject to the relevant rules.
For an accurate calculation based on your circumstances, speak to an accountant or tax adviser.
Example of Buy-to-Let Mortgage Interest Tax Relief
A simplified example helps demonstrate the principle.
Suppose an individual landlord receives:
£18,000 annual rental income
and incurs:
£6,000 of mortgage interest
Under the current finance-cost restriction, the landlord generally wouldn’t simply calculate their taxable rental profit as:
£18,000 − £6,000 = £12,000
Instead, the restricted mortgage finance cost is dealt with separately when calculating the basic-rate tax reduction.
At the current 20% rate, £6,000 × 20% = £1,200 illustrates the potential basic-rate reduction before considering HMRC’s applicable limits and the landlord’s individual tax circumstances.
This is deliberately simplified. Other allowable property expenses, income, losses and individual circumstances can affect the actual calculation.
What Is Section 24?
“Section 24” is the term commonly used when discussing the restrictions on residential landlord finance-cost relief.
The changes were phased in from April 2017 and fully applied from April 2020.
They affect finance costs associated with residential property businesses subject to Income Tax, including interest on:
- mortgages
- other qualifying loans
- loans used to purchase furnishings
- overdrafts
HMRC also identifies certain fees and incidental costs associated with obtaining or repaying mortgages and loans as finance costs affected by the restriction.
The effect can be particularly important for landlords with substantial mortgage borrowing.
Which Landlords Are Affected by the Mortgage Interest Restriction?
According to HMRC, the restriction applies to residential landlords including:
- UK-resident individuals letting residential property in the UK or overseas
- non-UK-resident individuals letting residential property in the UK
- individuals letting residential property through partnerships
- certain trustees and beneficiaries of trusts liable for Income Tax on residential property profits
HMRC also makes an important distinction: UK and non-UK resident companies are not affected by this particular finance-cost restriction in the same way.
That distinction is one reason landlords increasingly encounter the question of personal-name vs limited-company buy-to-let.
But tax is only one part of that decision.
Does the Mortgage Interest Restriction Apply to Limited Companies?
Not in the same way.
HMRC confirms that the residential finance-cost restriction applicable to Income Tax taxpayers does not apply to Corporation Tax customers.
For companies, interest is instead dealt with under the loan relationship regime for Corporation Tax purposes.
This is sometimes presented online as meaning: “Limited-company buy-to-let is more tax-efficient.”
That’s far too simplistic.
There can be numerous tax consequences associated with owning property through a company, extracting profits, transferring existing property, disposing of property and other aspects of company ownership.
Oportfolio can explain how limited-company buy-to-let mortgages differ from mortgages in an individual’s name, but whether a company is appropriate from a tax perspective should be discussed with a qualified accountant or tax adviser.
Individual vs Limited Company Buy-to-Let Mortgages
The ownership structure doesn’t only affect taxation.
It can also affect the mortgage.
An individual buy-to-let mortgage and a limited-company buy-to-let mortgage may differ in areas including:
- Lender choice – not every lender approaches both structures in the same way.
- Mortgage rates and fees – products available to companies may differ from those offered to individual landlords.
- Rental affordability calculations – lenders assess whether expected rental income sufficiently supports the mortgage using their own stress rates and interest coverage ratio requirements.
- Personal guarantees – lenders may require directors to provide personal guarantees on limited-company borrowing.
- Property type and portfolio size – criteria can vary considerably for portfolio landlords, HMOs, multi-unit properties and other specialist cases.
This is why we’d strongly recommend speaking to both your accountant and your mortgage broker before deciding how a new investment property should be purchased.
Changing an ownership structure after purchasing a property can be very different from choosing the structure before purchase.
What Finance Costs Are Covered by the Restriction?
It isn’t only mortgage interest.
HMRC says restricted residential finance costs can include interest on:
Mortgages
Loans, including certain borrowing used to purchase furnishings
Overdrafts
- and certain other costs such as:
- fees and incidental costs associated with obtaining or repaying mortgages and loans;
- alternative finance returns;
- discounts, premiums and disguised interest.
Where borrowing is used partly for residential property and partly for another purpose, HMRC may require an appropriate apportionment.
This is another area where professional tax advice may be necessary.
Are Other Landlord Expenses Still Tax Deductible?
The mortgage finance-cost restriction doesn’t mean individual landlords have lost relief for every cost associated with running a rental property.
Depending on the circumstances, allowable property expenses can include areas such as:
- letting-agent and management fees
- insurance
- certain repairs and maintenance
- certain legal and professional fees
- council tax and other property costs paid by the landlord
- direct costs associated with letting the property
Capital expenditure is treated differently, so landlords shouldn’t assume every cost associated with a property can simply be deducted from rental income. HMRC provides separate rules governing allowable property expenses.
Again, an accountant can establish what is allowable for a particular property business.
How Can Mortgage Interest Tax Rules Affect Buy-to-Let Affordability?
This is where tax and mortgage advice need to be separated.
Your personal tax position doesn’t necessarily determine how much a mortgage lender will allow you to borrow.
Buy-to-let lenders commonly assess the expected rent against the mortgage using an Interest Coverage Ratio (ICR) and a stressed interest rate, although the calculation varies considerably between lenders and products.
The tax status of the applicant can sometimes form part of a lender’s criteria or rental affordability calculation.
For example, a lender may assess:
- whether you’re a basic or higher-rate taxpayer
- whether you’re purchasing personally or through a limited company
- the expected monthly rent
- the loan amount
- the mortgage product
- the applicable stress rate
- whether you’re a portfolio landlord
This means two landlords looking at the same property with the same rent and deposit could potentially have different mortgage options.
That’s an area where using a specialist buy-to-let mortgage broker can be particularly useful.
Is Limited Company Buy-to-Let Better Because of Section 24?
Not automatically.
The fact that companies aren’t subject to the residential finance-cost restriction in the same way as individual Income Tax taxpayers is an important difference.
But it should not be used in isolation to decide how you own property.
There may be:
- tax considerations
- mortgage considerations
- legal considerations
- administrative costs
and implications when money is eventually taken out of the company.
For someone buying their first investment property, the appropriate structure could therefore be very different from that of an experienced landlord building a substantial portfolio.
Our role at Oportfolio is to establish what mortgage options may be available under the structures you’re considering.
Your accountant or tax adviser should advise on which ownership structure is appropriate from a tax perspective.
Buy-to-Let Tax Changes Coming in April 2027
This is an important forthcoming change for landlords.
For the current 2026/27 tax year, the standard Income Tax rates for England, Wales and Northern Ireland remain 20%, 40% and 45%, subject to the relevant bands and allowances.
However, from 6 April 2027, the government is introducing separate Income Tax rates for property income.
For 2027/28, these are set to be:
| Property income band | Rate from 6th April 2027 |
|---|---|
| Property basic rate | 22% |
| Property higher rate | 42% |
| Property additional rate | 47% |
Importantly for this article, HMRC’s published guidance also confirms that residential finance-cost relief will be calculated at the new 22% property basic rate from April 2027.
This doesn’t change the fundamental principle that affected individual landlords receive a tax reduction rather than simply deducting all residential mortgage finance costs from rental income.
But it does mean this article will need another accuracy review before the 2027/28 tax year begins.
Oportfolio Insight
One of the biggest mistakes landlords can make is deciding how to structure a property purchase based on tax alone.
We regularly deal with buy-to-let cases where the mortgage structure matters just as much as the headline rate.
A limited company may receive different tax treatment from an individual landlord, but that doesn’t automatically mean it will have access to the same mortgage products, rates or affordability calculations.
Equally, choosing personal ownership because a particular mortgage looks cheaper doesn’t tell you whether that structure is appropriate from a tax perspective. The two conversations need to happen together.
Your accountant or tax adviser can advise on the tax consequences of the ownership structure.
Your mortgage broker can establish how that structure affects lender choice, borrowing capacity and mortgage costs.
Ideally, those questions should be answered before you purchase the property, rather than after you’ve already committed to a structure.
Key Takeaways
- Individual residential landlords can no longer generally deduct all mortgage interest from rental income when calculating taxable property profit.
- For 2026/27, qualifying residential finance costs can instead contribute towards a basic-rate tax reduction, currently based on 20%, subject to HMRC’s rules and limits.
- The finance-cost restriction includes more than mortgage interest and can cover certain other borrowing and associated finance costs.
- Companies are not subject to the same residential finance-cost restriction and their financing costs are dealt with under Corporation Tax rules.
- This doesn’t automatically make limited-company ownership more tax-efficient overall.
- From 6 April 2027, separate property-income rates of 22%, 42% and 47% are due to apply, with residential finance-cost relief calculated at the 22% property basic rate.
- Mortgage availability and tax treatment should both be considered before choosing how to purchase an investment property.
- Oportfolio can advise on the mortgage implications; individual tax advice should come from an appropriately qualified tax professional.
Summary
Buy-to-let mortgage tax relief has changed considerably from the system many landlords remember.
For affected individual residential landlords, mortgage interest generally isn’t deducted directly from rental income when calculating taxable property profit. Instead, qualifying finance costs can contribute towards a basic-rate tax reduction.
Limited companies are treated differently, but that alone doesn’t establish whether company ownership is the right choice.
For landlords considering their next purchase, the important thing is to look at tax structure and mortgage structure together.
An accountant or tax adviser can advise on the tax consequences.
Oportfolio can advise on the mortgage.
Speak to Oportfolio About Your Buy-to-Let Mortgage
Whether you’re purchasing your first rental property, expanding an existing portfolio or considering a limited-company buy-to-let mortgage, Oportfolio can help you understand the mortgage options available.
Our advisers work with landlords across London and the UK, including clients with more complex portfolios, limited companies and specialist property requirements.
