Can you still claim mortgage interest on buy-to-let property?

Yes — but the rules have changed significantly.

For individual landlords, mortgage interest is no longer deducted as an expense when calculating rental profits.

Instead, you receive a basic rate (20%) tax credit.

How does mortgage interest relief work now?

Since 6 April 2020, the rules are:

• You cannot deduct mortgage interest from rental income
• Instead, you receive a 20% tax credit on the interest paid

This applies to:

• Buy-to-let mortgages
• Loans to purchase property
• Mortgage arrangement fees and related finance costs

Why does this matter?

This change mainly affects higher and additional rate taxpayers.

Previously:

• Interest reduced your taxable profit

Now:

• Your taxable profit is higher
• You only receive a 20% tax reducer, regardless of your tax band

Example

Rental income: £15,000
Mortgage interest: £10,000

Old rules (pre-2020):

• Taxable profit = £5,000

Current rules:

• Taxable profit = £15,000
• Tax is calculated on full amount
• Then a 20% credit is applied (£2,000)

This often results in more tax being payable, especially for higher rate taxpayers.

Impact on landlords

This change can:

• Push landlords into higher tax bands
• Reduce overall profitability
• Affect affordability for mortgage purposes

It has been a significant factor in many landlords reviewing their structure.

Do these rules apply to companies?

No — companies are treated differently.

Limited companies:

• Can still deduct mortgage interest in full
• Pay Corporation Tax on profits instead

For 2025/26:

• Corporation Tax ranges from 19% to 25%, depending on profits

This is one reason many landlords consider operating through a company.

Should you move your property into a company?

Not necessarily.

While companies allow full interest relief, there are other factors to consider:

• Stamp Duty Land Tax on transfer
• Capital Gains Tax on incorporation
• Mortgage availability and costs
• Extracting profits (dividends vs salary)

Incorporation needs careful planning — it is not always the right solution.

Common mistakes to avoid

• Assuming mortgage interest is still fully deductible
• Not understanding the impact on higher rate tax
• Incorporating without reviewing tax and costs
• Ignoring the effect on cash flow and borrowing

Planning opportunities

Landlords may be able to reduce the impact by:

• Reviewing ownership structure (individual vs company)
• Splitting ownership between spouses
• Managing overall income to stay within lower tax bands

Final thoughts

Mortgage interest relief changes have fundamentally altered how buy-to-let property is taxed for individuals.

While basic rate taxpayers may see little impact, higher rate taxpayers can face significantly higher tax bills.

Understanding your position — and planning accordingly — is key to maintaining profitability.