Residential property finance costs
for landlords

Box 44 of the UK property pages is for residential property finance costs: mortgage interest, interest on other loans, and fees for getting or repaying loans for residential lets. These are not deducted from your rental profit. Instead they give a tax reduction of 20% of the costs, subject to limits, and any unused amount is carried forward in box 45.

What goes in this category

• Mortgage interest on residential let property.
• Interest on other loans used for the residential letting business.
• Arrangement, broker and other fees for getting or repaying the loans.
• Alternative finance payments for residential property.

What does not

• Capital repayments.
• Finance costs for non-residential lets, which go in box 26.
• Interest on borrowing used for personal purposes.
• Interest on your own home, other than through a trading business.

Items in this category

How the reduction is worked out

The tax reduction is 20% of the lowest of three figures: your finance costs for the year (plus any brought forward), your property profits, and your adjusted total income above the personal allowance. Any finance costs not used because of the limits carry forward to the next year of the same property business.

Who is affected most

A basic-rate landlord gets broadly the same relief as a deduction. A higher or additional rate landlord gets relief at 20% only, instead of 40% or 45%. Because finance costs no longer reduce rental profit, some landlords are pushed into a higher band, or lose child benefit or personal allowance.

Box 45: brought forward

Unused residential finance costs from earlier years go in box 45. They stay with the same property business and are used when the limits allow. If the property business ends, unused amounts are generally lost.

Holiday lets

Since April 2025, furnished holiday lettings are no longer a separate regime, so finance costs on holiday lets are residential finance costs, restricted in the same way.

Joint ownership

Each owner enters their share of finance costs on their own return, alongside their share of the income, and gets their own 20% reduction. Spouses and civil partners are usually taxed 50:50 unless they have made a declaration of unequal beneficial interests.

What counts as finance costs

Finance costs include mortgage interest, interest on loans to buy furnishings, overdraft interest, fees and incidental costs of getting or repaying loans, discounts, premiums and disguised interest. The capital part of repayments never counts. If a loan is partly for a trade and partly for residential letting, apportion it.

Losses and finance costs

Because finance costs are not deducted, they cannot create or increase a rental loss. If your rental business makes a loss for other reasons, your finance costs are carried forward, and used in later years when you have property profits.

Furnished lettings and loans for furniture

Interest on a loan to buy furniture or appliances for a residential let is a residential finance cost, restricted to the 20% tax reduction like mortgage interest. The furniture itself can qualify for replacement of domestic items relief when it is replaced, but not when first bought. Loans used to buy furniture for your own home are personal and never count as finance costs of the letting business, even if the home is later let.

Records to keep

Keep annual interest statements from each lender and invoices for any loan fees. Keep a running record of unused finance costs carried forward, because you will need the figure for box 45 each year.

Making Tax Digital

Landlords within Making Tax Digital for Income Tax report residential finance costs in their quarterly updates and final declaration. The software carries the 20% reduction and the carry-forward through to the calculation.

Worked example: a higher-rate landlord

A higher-rate landlord has rent of £18,000, allowable expenses of £3,000 and mortgage interest of £8,000. Her rental profit is £15,000, taxed at 40%: £6,000. Her tax reduction is £1,600, 20% of £8,000, so her tax on the let is £4,400. If interest were still deductible, it would have been £2,800.

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

• Deducting residential mortgage interest from rental profit.
• Forgetting to carry forward unused finance costs.
• 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
• Non-residential property finance costs, SA105 box 26
• 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

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