Non-residential property finance costs
for landlords

Box 26 of the UK property pages is for non-residential property finance costs: the costs of getting a loan to buy a commercial property you let, such as a shop or office, and the full interest on it. Finance costs for residential lets do not go here; they go in box 44, where they give a 20% tax reduction rather than a deduction.

What goes in this category

• Interest on loans to buy non-residential property you let.
• Costs of getting such a loan, such as arrangement fees.
• Alternative finance payments for non-residential property.
• The non-residential share of a loan that funds mixed property.

What does not

• Finance costs for residential lets, which go in box 44.
• Capital repayments.
• Interest on borrowing used for personal purposes.
• Interest on borrowing above the property’s value when first let.

Items in this category

Residential or non-residential

Residential property means dwellings, including houses, flats and holiday lets (since April 2025). Non-residential means commercial property, such as shops, offices, workshops and land let for non-residential use. The distinction decides whether finance costs are deducted in full or restricted to a 20% tax reduction.

Mixed-use property and loans

A flat above a shop, or a loan secured on both kinds of property, needs a reasonable apportionment. GOV.UK says you apportion the interest to work out the residential finance costs; only those are restricted. The non-residential share goes here.

Extra borrowing

Interest on extra borrowing is allowable if the money is used wholly for the letting business. Interest on borrowing above the capital value of the property when it was first let is not deductible. Money released and spent personally does not qualify.

Capital repayments

Only interest and the costs of getting the loan count. The capital part of repayments is never deductible, for any kind of property.

Companies and partnerships

Companies letting residential property are not subject to the 20% restriction, which applies to individuals, partnerships and trusts. This page covers individuals letting property.

Converting property between uses

If you convert a shop into flats, or a house into offices, the finance costs change treatment from the date of the change of use. Apportion the year's costs by time before and after the change, and keep evidence of when the use changed.

Commercial lets and VAT

Commercial landlords can opt to tax a property, charging VAT on rent and reclaiming VAT on costs, including loan-related professional fees. If you have opted to tax, the finance costs deducted here are net of any VAT you reclaim. Residential lets are exempt from VAT, so residential landlords claim costs gross.

Partnerships and joint owners

Where a commercial property is owned jointly, each owner claims their share of the finance costs along with their share of the rent. If one owner borrowed personally to fund their share, that owner claims the interest, provided the money was used in the letting business. Keep the loan documents with the property records so the claim can be traced to the property it funded.

Records to keep

Keep loan offers and agreements, annual interest statements, valuations showing how a mixed loan was apportioned, and records of what any extra borrowing was spent on. Keep one set of records per property where you can, because finance costs are often challenged property by property.

Why non-residential costs are worth more

Non-residential finance costs reduce your rental profit, which also reduces the income used for other calculations, such as whether you pay tax at the higher rate. That makes them more valuable than residential finance costs for a higher-rate taxpayer, and is why getting the apportionment right on mixed property matters.

Property allowance

If you use the £1,000 property allowance instead of actual expenses, you cannot also deduct finance costs, and cannot claim the residential finance cost reduction on property income covered by the allowance.

Worked example: a shop and a flat

A landlord has one loan of £200,000 secured on a shop worth £120,000 and a flat worth £80,000, bought with the loan. Interest is £10,000. She apportions £6,000 to the shop, deducted in full in box 26, and £4,000 to the flat, entered in box 44 for a £800 tax reduction.

Four questions before a cost goes here

1. Was it for the letting, and only for it? A cost must be incurred wholly and exclusively for the property business. A cost with a personal purpose that cannot be separated is not allowable at all.
2. Is part of it personal? Where a business part can be identified, such as business miles or business calls, claim that part on a reasonable basis and leave the rest out.
3. Is it a running cost or something you keep? Running costs belong in the expense categories. Buying or improving the property is capital and never goes here, though replacing domestic items has its own relief.
4. Is there a specific rule? Some costs are disallowed whatever their purpose, such as fines and client entertaining, and some have their own treatment, such as residential finance costs, which give a 20% tax reduction instead of a deduction.

Jointly owned property

If you own a let property with someone else, each owner reports their share of the rental income and expenses. Married couples and civil partners who live together are usually taxed on equal shares; if you own the property in unequal shares and are entitled to the income in the same shares, you can be taxed on that basis once you declare your beneficial interests to HMRC. Owners who are not married or in a civil partnership usually split profits by their share of the property, unless they agree a different allocation.

Property allowance or expenses

Instead of deducting expenses, a landlord can claim the £1,000 property allowance, which is simply taken off rental income. You cannot claim both for the same income, so the allowance only helps if your allowable expenses are less than £1,000. If your gross property income is £1,000 or less, the allowance covers it and you may not need to report it. Either way, keep records of what you spent, so you can tell which gives the lower profit.

This category in Making Tax Digital

Under Making Tax Digital for Income Tax, a landlord's quarterly update carries the same property expense categories as the UK property pages of the return, so this category is one line of each update. Landlords with property income only, or with property and trading income together over £50,000, join from 6 April 2026, falling to £30,000 from April 2027 and £20,000 from April 2028. If your property income is under £90,000 you can send a single consolidated expenses figure instead of the categories, but you still need the underlying records.

Cash basis or traditional accounting

The cash basis, the default for sole traders and landlords since 2024/25, counts a cost in the tax year you pay it. Traditional (accruals) accounting counts it when you incur it, whenever you pay, and treats things you buy to keep as capital, relieved through capital allowances. For most costs in this category the only difference is timing; for anything you buy to keep, the basis decides whether it is an expense at all.

Residential finance costs are different

Since 6 April 2020, mortgage interest and other finance costs on residential lets are not deducted from rental income at all. Instead, you get a tax reduction of 20% of those costs, which is worth the same as a deduction to a basic-rate taxpayer and less to a higher-rate one. Finance costs for commercial and other non-residential lets are still deducted in full. That is why the property pages have a separate box (44) for residential finance costs.

How much an allowable cost saves

Landlords pay Income Tax on rental profit but no Class 4 National Insurance, so each pound of allowable expense saves 20p at the basic rate, 40p at the higher rate and 45p at the additional rate. Residential finance costs are the exception: they give a flat 20% tax reduction instead of a deduction.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the invoice or receipt for every cost in this category, with a note of the business purpose wherever it is not obvious, and how you worked out the business share of anything also used privately. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep digital records and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028.

Common mistakes

• Putting residential finance costs in box 26.
• Not apportioning a loan secured on mixed property.
• Including capital repayments.

Every other category

The other 7 categories on the UK property pages, in box order:

• Rent, rates, insurance and ground rents (property), SA105 box 24
• Property repairs and maintenance, SA105 box 25
• Legal, management and other professional fees (property), SA105 box 27
• Costs of services provided, including wages (property), SA105 box 28
• Other allowable property expenses, SA105 box 29
• Travel costs (property), SA105 box 29
• Residential property finance costs, SA105 box 44

The A to Z of expenses lists every item and all 23 categories: the 15 self-employment categories and the 8 for UK property.