Is mortgage interest an allowable expense for landlords in the UK?

For residential lets, not as a deduction from rent. Since 6 April 2020 it gives a tax reduction worth 20% of the interest (subject to limits) instead. For non-residential property, such as a shop, interest is still deducted as a normal expense.

Do I include the capital part of my mortgage payment?

No. Only interest and the costs of getting or repaying the loan count. Capital repayments are never deductible.

Does simpler categorisation mean I can lump mortgage interest in with other expenses?

No. Even with UK property turnover under £90,000, residential landlords must record whether an expense is a restricted finance cost.

Mortgage interest for landlords: residential finance costs and the 20% tax reduction

If you let residential property, you can’t take mortgage interest off your rent. You get a tax reduction worth 20% of it instead. Under Making Tax Digital you still record it in every quarterly update, but in its own category. Here is how it works.

General information, not tax advice. Checked against GOV.UK on 20 October 2026.

What counts as a residential finance cost

GOV.UK lists these as finance costs restricted to basic-rate relief:

interest on mortgages and loans, including loans to buy furnishings
interest on overdrafts
fees and incidental costs for getting or repaying a mortgage or loan
alternative finance returns (for example, some Islamic finance products)

The capital you repay is never deductible. If a loan is partly for the letting business and partly private, split the interest. Interest on borrowing above the property’s value when you first let it may not qualify. GOV.UK has examples.

The restriction only applies to residential lets. Interest on a commercial (non-residential) property loan is still deducted from rent in full, in the “Non-residential property finance costs” category.

How the 20% tax reduction is worked out

Your tax is reduced by 20% (the basic rate) of the lowest of:

finance costs: this year’s residential finance costs plus any brought forward from earlier years
property profits: your property business profit for the year, after using losses brought forward
adjusted total income: your income above the personal allowance, excluding savings and dividend income

You can’t have this reduction in the same year as the £1,000 property allowance: it’s one or the other (see property allowance or expenses). The reduction can’t create a refund. If it’s limited by your property profits or adjusted total income, the unused finance costs carry forward to later years of the same property business.

Worked example (simplified)

Rent £18,000, other allowable expenses £3,000, mortgage interest £6,000, with a salary that uses up the personal allowance:

Taxable property profit: £18,000 − £3,000 = £15,000. The interest is not deducted.
Tax reduction: 20% × the lowest of £6,000 (finance costs), £15,000 (profit) and adjusted total income (assume higher) = £1,200 off the tax bill.

A basic-rate taxpayer ends up roughly where they would if the interest were deducted. A higher-rate taxpayer pays 40% on the £15,000 but only gets 20% back on the interest. That is why the restriction (often called “Section 24”) costs higher-rate landlords more.

Mortgage interest doesn’t affect whether MTD applies to you. MTD qualifying income is your gross rent (your share, if jointly owned) before any expenses. Check yours with the free MTD checker.

Recording it for MTD

Every quarterly update includes your cumulative residential finance costs in the “Residential property finance costs” category. A separate category covers residential finance costs brought forward from earlier years.
Simpler categorisation doesn’t remove this. If your UK property turnover is under £90,000 you can record most items as just income or expense, but residential landlords must still record whether each expense is a restricted finance cost.
Interest, not the whole payment. Only interest qualifies, and your lender’s annual statement splits interest from capital. GOV.UK says you can make your digital record either of the interest or of the full payment. If you record the full payment, you must adjust it before you finalise your tax position. Recording just the interest is simplest.
Joint mortgages: record your share. For jointly let property GOV.UK lets you send income only during the year and add expenses, including finance costs, when you resend your fourth update before the tax return. See MTD for joint owners.
On the 2025-26 paper return, residential finance costs go in box 44 and unused amounts from earlier years in box 45, not in the expenses boxes. Your MTD software handles the equivalent for 2026-27 onwards.

Our MTD Landlord Record Keeper keeps residential finance costs in a separate category and leaves them out of the profit figure. It is a spreadsheet, not MTD-compatible software, so you still need bridging software to send updates. Other ways to keep records are covered in MTD software for 1-5 properties.

Sources (last checked 20 October 2026)

GOV.UK: Work out your rental income when you let property (finance costs restricted to basic rate; what counts)
GOV.UK: Tax relief for residential landlords: how it’s worked out (lowest-of-three calculation, carry forward, no refund; last updated 6 April 2017)
GOV.UK: MTD create digital records (simpler categorisation and restricted finance costs; recording interest or the full mortgage payment; updated 16 October 2026)
HMRC: MTD quarterly update direction (residential property finance costs and brought-forward categories)
LITRG: Making Tax Digital for landlords (MTD for landlords, including finance costs)
HMRC Property Income Manual PIM4460 (property allowance or the finance cost reducer, not both)
GOV.UK: Send quarterly updates (joint lets: income only, then expenses in update four)
HMRC: SA105 UK property notes 2026 (boxes 44 and 45)

Last reviewed: 20 October 2026. Facts checked against the sources linked on this page.