Mortgage Interest Relief for Landlords: What’s Changed and How It Affects Your Tax

Understanding mortgage interest relief for landlords has become one of the most critical aspects of property taxation in England.

Since the introduction of Section 24 of the Finance Act 2015, the way landlords claim mortgage interest has changed dramatically, reducing net profits and increasing effective tax rates for many property owners.

This guide explains mortgage interest relief for landlords, what’s changed under the new system, how it affects your tax bill, and what strategies you can use to reduce the financial impact.

What Is Mortgage Interest Relief for Landlords?

Before the rule changes, landlords could deduct their entire mortgage interest payments from rental income before calculating tax.

This system meant that tax was applied only to the profit, the difference between rental income and all expenses (including mortgage interest).

However, the government phased out complete relief between 2017 and 2020 through Section 24, which now restricts landlords to a basic-rate tax credit of 20% on finance costs rather than a full deduction.

This change primarily targets individual landlords (not companies) and has had a significant impact on higher-rate taxpayers who previously benefited most from the old system.

What Changed Under Section 24

The Section 24 restrictions on mortgage interest relief were introduced gradually:

2017/18: 75% of mortgage interest deductible; 25% basic-rate credit.
2018/19: 50% deductible; 50% basic-rate credit.
2019/20: 25% deductible; 75% basic-rate credit.
2020/21 onwards: 0% deductible; 100% basic-rate credit only.

Now, all individual landlords can only claim a 20% tax credit on their finance costs, regardless of their tax rate.

This applies to:

Mortgage interest payments.
Loans for purchasing, improving, or furnishing rental properties.
Overdrafts or other financing used for property purposes.

For limited companies, this restriction does not apply; corporate landlords can still deduct full mortgage interest as a business expense before calculating Corporation Tax.

Example of How Section 24 Affects Landlords

Before Section 24:

A landlord earning £30,000 in rental income and £20,000 in mortgage interest would pay tax only on £10,000 of profit.

After Section 24:

The same landlord is taxed on the full £30,000 rental income, receiving only a 20% tax credit on the £20,000 mortgage interest.

If they fall into the higher-rate (40%) or additional-rate (45%) brackets, the total tax paid increases substantially even though the landlord’s real profit hasn’t changed.

This pushes some landlords into higher tax bands and can reduce overall rental profitability.

Who Is Most Affected by the Mortgage Interest Relief Changes

The restrictions on mortgage interest relief for landlords mainly affect:

Individual landlords in the higher or additional tax brackets.
Landlords with highly leveraged properties (large mortgages).
Those with multiple properties or rising rental income that moves them into higher tax thresholds.

Basic-rate taxpayers experience less impact since the 20% credit roughly matches their tax rate.

However, many landlords who previously fell into the basic-rate bracket have now been pushed into higher bands due to Section 24’s “tax on turnover” effect.

Impact on Taxable Income and Net Profit

The most significant effect of the new rules is that mortgage interest no longer reduces taxable income.

This means:

Your gross rental income is added to other earnings (salary, pensions, etc.) before tax is calculated.
The resulting total can push you into a higher tax bracket.
Some landlords also lose child benefit, personal allowance, or other means-tested advantages due to the higher income figure.

Even though you still receive a 20% credit, your overall tax bill could rise sharply.

Mortgage Interest Relief for Limited Company Landlords

Landlords who hold property through a limited company are not affected by Section 24.

Companies can still:

Deduct 100% of mortgage interest as a legitimate business expense.
Pay Corporation Tax (currently between 19% and 25%) only on actual profits.
Distribute profits later as dividends (subject to Dividend Tax).

This structure can be more tax-efficient for higher-rate taxpayers, though it involves setup costs, accountancy fees, and legal considerations.

For many, incorporation has become a practical way to mitigate the loss of complete mortgage interest relief for landlords, particularly for larger or growing portfolios.

Tax-Saving Strategies for Landlords

Even with the Section 24 restrictions, there are several ways landlords can legally reduce their tax burden:

Consider Incorporation

Transferring property ownership into a limited company may restore full interest deductibility. Please seek professional advice first, as it can trigger Capital Gains Tax and Stamp Duty Land Tax.

Joint Ownership

Splitting ownership with a spouse or civil partner allows the use of both personal allowances and lower tax bands.

Refinance to Lower Interest Rates

Reducing mortgage costs can offset the impact of restricted relief. Many landlords review loans annually to ensure competitive rates.

Claim All Allowable Expenses

Ensure you deduct all eligible costs, including repairs, insurance, letting agent fees, and management costs.

Use Pension Contributions

Contributing to a pension can reduce taxable income and prevent being pushed into a higher tax band.

Plan for Capital Gains

If selling, consider Private Residence Relief, Lettings Relief, or Business Asset Disposal Relief if applicable.

Offset Losses

If you make a loss in one tax year, it can be carried forward to offset future rental profits.

Mortgage Interest Relief for Furnished Holiday Lets

If your property qualifies as a Furnished Holiday Let (FHL), you are exempt from Section 24 restrictions.

Owners of FHLs can still:

Deduct full mortgage interest.
Claim capital allowances on furniture and equipment.
Access certain business reliefs on sale (including 10% CGT rate).

This makes the FHL route increasingly attractive to landlords with properties in tourist areas.

Digital Record-Keeping and MTD

Under Making Tax Digital for Income Tax (MTD IT) — due in April 2026 for landlords earning above £50,000 — all records of rental income and mortgage interest must be kept digitally.

Using HMRC-compatible accounting software such as Xero, QuickBooks, or FreeAgent ensures:

Compliance with MTD submission requirements.
Accurate tracking of mortgage costs and tax credits.
Fewer calculation errors during quarterly updates.

Keeping precise digital records is now vital to efficiently manage mortgage interest relief for landlords.

Future of Mortgage Interest Relief for Landlords

The government has shown no indication of reversing the Section 24 changes. However, debates continue in Parliament and within the property industry over their fairness, particularly for small landlords.

It’s possible future Budgets could adjust thresholds or reintroduce partial reliefs for targeted groups, but landlords should plan on the assumption that current rules remain in place.

The most effective long-term response remains portfolio restructuring and proactive tax planning.

FAQs

Can landlords still claim mortgage interest as an expense?

Not directly. You receive a 20% basic-rate tax credit on mortgage interest payments under Section 24.

Does this affect limited company landlords?

No. Companies can still deduct full mortgage interest before calculating Corporation Tax.

Is the 20% credit applied automatically?

Yes, it is calculated automatically when filing your Self Assessment return.

Can I switch my property to a company to avoid Section 24?

Yes, but it may involve CGT and SDLT costs. Always seek professional tax advice.

Do these rules apply to furnished holiday lets?

No. FHLs retain full interest deductibility and other tax benefits.

Conclusion

The removal of complete mortgage interest relief for landlords under Section 24 has transformed the taxation of rental income in England. Landlords can no longer offset mortgage costs in full and must adapt by planning smarter, exploring incorporation, and keeping accurate records.

Understanding the new system and adopting a proactive tax strategy ensures landlords remain profitable and compliant while minimising their tax exposure. With preparation and sound advice, even in a post-Section 24 world, landlords can continue to build sustainable, tax-efficient property portfolios.

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Need help now? Contact Landlord Advice UK today for tailored guidance and practical support to future-proof your rental business.