Is mortgage capital repayments
tax deductible?

No. Repaying the amount you borrowed is never an expense, for landlords or traders. Only the interest part of a mortgage payment can count (GOV.UK), and GOV.UK says you cannot claim repayments of loans or finance arrangements (GOV.UK).

Many landlords are surprised to owe tax when their rent barely covers their mortgage. The reason is usually capital repayments. The rent is income, the interest counts (for residential lets, as a 20% tax reduction), but the capital part of the payment is repaying a debt, not a cost. So cash flow and taxable profit can be very different.

Is mortgage capital repayments tax deductible?

The HMRC rule

Money taken from the business for personal use, savings and investments, loan capital repayments and your own tax are not expenses. Some have their own relief elsewhere on the tax return. The rule comes from Work out your rental income when you let property, Legal and financial costs.

GOV.UK says landlords cannot claim the full amount of their mortgage payment: only the interest element of the payment can be offset against income (landlords). For sole traders, GOV.UK excludes repayments of loans, overdrafts or finance arrangements (legal and financial costs), and the SA103F notes say not to include repayments against the borrowed amount (SA103F notes).

When you can claim it

• The interest part of the payment, subject to the rules for your type of property.
• Ask your lender for an annual statement showing interest and capital.
• Consider whether the loan funded allowable assets, relieved separately.
• Include loan costs as finance costs.

When you cannot

• The capital part of a repayment mortgage.
• A lump sum paid to reduce or clear the loan.
• Capital repaid at the end of an interest-only mortgage.
• Loan repayments for vehicles or equipment on top of claiming the asset.

What to claim instead

If your rent does not cover the tax as well as the mortgage, look at the interest and capital split, your other allowable expenses, and whether interest-only borrowing suits your plans. The asset bought with the loan may get separate relief, such as capital allowances for business equipment.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is not a cost of running the business at all, so the accounting basis makes no difference: it never goes in your expenses, although it may have a relief of its own elsewhere on the return.
4. Is there a specific rule? For mortgage capital repayments, the deciding rule is payments that are not business costs: money taken from the business for personal use, savings and investments, loan capital repayments and your own tax are not expenses. Some have their own relief elsewhere on the tax return.

Worked example: rent that just covers the mortgage

A landlord's rent is £12,000, and she pays £9,600 a year on a repayment mortgage: £6,000 interest and £3,600 capital. Other costs are £2,000. Her rental profit is £10,000, because the £9,600 mortgage payment is not an expense. As a basic-rate taxpayer she pays £2,000 tax, less a £1,200 finance cost reduction: £800, although her cash surplus is only £400.

Why capital is not a cost

When you borrow, the money you receive is not income, so when you pay it back, the repayment is not an expense. What you pay for the use of the money, the interest, is the cost. The asset bought with the loan is dealt with on its own terms.

Repayment versus interest-only

On an interest-only mortgage, each monthly payment is interest, and the whole amount counts subject to the landlord rules. On a repayment mortgage, the capital part grows over time, so the part that counts shrinks each year while the payments stay the same. That is why taxable profit can rise as a mortgage matures.

Sole traders and business loans

The same rule applies to business loans. If you buy a van with a loan, the van gets capital allowances or a cash basis deduction, the interest is a finance cost, and the capital repayments are neither. Claiming both the van and the repayments would claim the same cost twice.

Cash flow and tax

Because capital repayments come out of your cash but not your taxable profit, a let or business can be profitable for tax while having little spare cash. Set aside money for tax from rental or trading profit, not from what is left in the bank after loan payments.

Overpaying a mortgage

Overpaying reduces future interest, and so future finance costs, but the overpayment itself is not an expense. Releasing equity from a let property and spending it personally creates borrowing whose interest is not allowable.

Where the interest goes

Residential landlords put interest in box 44 of the UK property pages; non-residential interest goes in box 26. Sole traders put business loan interest in box 25. Capital repayments go nowhere on the return.

If you are a landlord

Landlords can offset only the interest element of a mortgage payment, and for residential lets it gives a 20% tax reduction rather than a deduction (GOV.UK). The capital part is never relieved.

Where it goes on your return and in MTD

Because it is not allowable, a sole trader leaves it out of expenses altogether. If it went through your business account, record it as drawings or a non-business payment, and if your accounts include it, add the same amount back in the disallowable column of the full self-employment pages.

A landlord cannot deduct it from rental income either, so it stays out of the property expense boxes.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

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 bank and card statements, loan agreements and annual interest statements, and a note of how you split any account or loan used for both business and personal purposes. Records must be kept for at least five years after the 31 January deadline for the tax year.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Deducting the full mortgage payment.
• Claiming a van and its loan repayments.
• Budgeting for tax from cash left after capital repayments.

Related expenses

This item sits in the interest on bank and other loans category, alongside business loan interest and HMRC late payment interest. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.