Is mortgage interest
tax deductible?

Partly. A sole trader working from home can claim a share of mortgage interest (never the capital) for the business use of the home (GOV.UK). A residential landlord cannot deduct mortgage interest from rental income: since 6 April 2020 it gives a tax reduction at the basic rate of 20% instead (GOV.UK). Interest on commercial lets is still deducted in full.

Mortgage interest is treated three different ways depending on who you are. A sole trader working from home can include a share of it in a working-from-home claim. A landlord of residential property gets a basic-rate tax reduction rather than a deduction. A landlord of commercial property deducts it in full. In every case, only the interest counts, never the capital you repay.

Is mortgage interest tax deductible?

The HMRC rule

Mortgage and loan interest and other finance costs for residential lets are not deducted from rental profit. They give a tax reduction at the basic rate of 20 per cent instead. Non-residential finance costs are deducted in full. The rule comes from Work out your rental income when you let property, If you work from home.

GOV.UK lists mortgage interest or rent among the household costs you can apportion when you work from home (expenses overview), and HMRC's worked examples include mortgage interest in the fixed costs split by area and time (BIM47825). For landlords, GOV.UK says that from 6 April 2020 Income Tax relief on all residential property finance costs is restricted to the basic rate, that only the interest element of a mortgage payment can be offset, and that interest on non-residential lets is deducted in the usual way (landlords). Residential finance costs go in box 44 of the UK property pages, and unused amounts in box 45 (SA105).

When you can claim it

• A share of home mortgage interest for the business use of part of your home.
• For residential lets, a 20% tax reduction on mortgage interest and other finance costs.
• For commercial lets, the full mortgage interest as an expense.
• Interest on additional borrowing used wholly for the letting business, within the rules.

When you cannot

• Mortgage capital repayments, for anyone.
• The full mortgage interest on a home you only partly use for business.
• A deduction from rental profit for residential mortgage interest.
• Interest on borrowing above the property’s value when it was first let, used for personal purposes.

What to claim instead

A residential landlord's interest is not lost; it becomes a tax reduction worth 20% of the finance costs, subject to limits, with any unused part carried forward. For a basic-rate landlord that is broadly the same as a deduction. For a higher-rate landlord, it is worth half as much. Holding lets through a company is a different regime, beyond the scope of this page.

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 a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For mortgage interest, the deciding rule is residential property finance costs: mortgage and loan interest and other finance costs for residential lets are not deducted from rental profit. They give a tax reduction at the basic rate of 20 per cent instead. Non-residential finance costs are deducted in full.

Worked example: a basic-rate and a higher-rate landlord

A landlord receives £14,000 of rent, has £2,000 of allowable expenses and pays £6,000 of mortgage interest on a residential let. Her rental profit is £12,000 and she gets a tax reduction of £1,200 (20% of £6,000). If she is a higher-rate taxpayer, tax on the £12,000 is £4,800 less £1,200, £3,600, compared with £2,400 if the interest had been deductible.

Interest and capital

A repayment mortgage payment is part interest, part capital. Only the interest is a cost; the capital repays the loan and reduces what you owe. Your lender's annual statement shows the interest charged for the year. On an interest-only mortgage, the whole monthly payment is interest, but the capital repaid at the end is still not deductible.

How the 20% tax reduction works

For residential lets, finance costs are left out of the rental profit calculation. Instead, your tax bill is reduced by 20% of the lowest of your finance costs, your property profits and your adjusted total income above the personal allowance. Any finance costs not used because of those limits are carried forward to future years. The costs go in box 44 of the UK property pages, and any unused amount in box 45.

Commercial and mixed lets

Interest on a loan for a commercial property, such as a shop or office you let, is deducted from rental profit in full, in box 26. If a loan funds both residential and commercial property, or partly a trade and partly a residential let, you apportion it reasonably and only the residential part is restricted. Furnished holiday lettings rules were abolished from April 2025, so holiday lets are now residential for this purpose.

Remortgaging and extra borrowing

If you increase the mortgage on a let property, interest on the extra borrowing can be relieved if the money is used wholly for the letting business. Interest on borrowing above the capital value of the property when it was brought into the letting business is not tax deductible. Money released and spent personally does not qualify at all.

Mortgage interest for a home office

For a sole trader, mortgage interest is one of the fixed costs you can include in an actual-cost working-from-home claim, split by the share of the home and the time used for business. HMRC's example of Bill, using a 5% room exclusively as an office, claims 5% of his Council Tax, insurance and mortgage interest. The flat rate for working from home does not include mortgage interest.

If you are a landlord

For residential landlords, finance costs, including mortgage interest, loan interest, arrangement fees and other incidental costs of getting a mortgage, give a basic-rate tax reduction rather than a deduction (GOV.UK). Keep each year's lender statement, because the interest figure feeds box 44 directly.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of mortgage interest belongs in rent, rates, power and insurance costs (SA103F box 21). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

For a landlord, it belongs in residential property finance costs (SA105 box 44 on the UK property pages), and in the matching category of a Making Tax Digital property update.

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.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

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 mortgage statements showing the interest and capital split, insurance schedules, service charge demands and invoices, and completion statements for any purchase. For a home also used for business, keep the calculation of the business share. Records must be kept for at least five years after the 31 January deadline for the tax year.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Deducting mortgage capital repayments as an expense.
• Deducting residential mortgage interest from rental profit instead of claiming the 20% reduction.
• Claiming all of a home mortgage’s interest for a small home office.

Related expenses

This item sits in the rent, rates, power and insurance costs category, alongside business rates, council Tax, garden office, home and landlord insurance, rent, service charges, solar panels and stamp Duty. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.