Can I still deduct mortgage interest from my rental income?

Not for residential property. Since April 2020 residential finance costs are given as a basic rate tax reducer worth 20% of the interest, entered in box 44 of the SA105, rather than deducted from your rental profit.

Which SA105 box does mortgage interest go in?

Box 44, Residential property finance costs. Box 26 is for loan interest on commercial property and remains a genuine deduction. Putting residential interest in box 26 overstates your expenses and understates your taxable profit.

Does the Section 24 restriction apply to limited companies?

No. Companies deduct finance costs as a normal business expense against profits. The restriction applies to individuals, partnerships with individual partners, and trustees letting residential property.

Why did my tax bill rise when my profit did not?

Because the interest no longer reduces the income figure HMRC assesses you on. A higher taxable profit can push you into the higher rate band, reduce child benefit through the High Income Child Benefit Charge, or taper your personal allowance above £100,000, even though your cash position is unchanged.

What happens if the tax reducer is more than my tax bill?

The relief is capped at the lower of the finance costs, the property profits, and your adjusted total income above the personal allowance. Anything unrelieved is carried forward to set against property profits in later years, and the carry forward is not time limited.

Mortgage interest goes in box 44, not your expenses

This is the single most common mistake on a landlord's tax return, and it is an expensive one in both directions. Checked against HMRC guidance in September 2026.

The short version

If you let residential property as an individual, your mortgage interest is not an expense you take off your rental income. It is a tax reducer worth 20% of the interest, and it goes in box 44 of the SA105, headed "Residential property finance costs".

Box 26 exists and is also about loan interest, which is why people land in it. Box 26 is for commercial property, and there the interest really is a deduction. Put residential interest in box 26 and you overstate your costs, understate your taxable profit, and file an incorrect return.

What actually changed

Before April 2017, mortgage interest was an ordinary deduction like insurance or repairs. Section 24 of the Finance (No. 2) Act 2015 phased that out over four years, and since April 2020 the restriction has applied in full.

The phrase people use is "you cannot claim mortgage interest any more", and it is wrong. You still get relief. You get it at a flat 20% rather than at your marginal rate, and it is applied after your tax is calculated rather than before.

A worked example

A higher rate taxpayer with £20,000 of rent, £5,000 of running costs and £8,000 of mortgage interest.

The way it does not work

£20,000 less £5,000 less £8,000 gives a £7,000 profit, taxed at 40%, so £2,800 of tax.

The way it does work

£20,000 less £5,000 gives a taxable profit of £15,000. Tax at 40% is £6,000. Then the box 44 reducer takes off 20% of the £8,000 interest, which is £1,600. The bill is £4,400.

Same rent, same mortgage, same bank account, £1,600 more tax. That gap is Section 24, and it is why the box matters.

For a basic rate taxpayer the arithmetic usually lands in the same place, because 20% relief is their marginal rate anyway. The sting is in the second-order effects below.

The part that catches people out

Because your assessed profit is now higher, the knock-on effects bite even when your income has not moved:

The higher profit can push you over £50,270 and into the higher rate band
It can trigger the High Income Child Benefit Charge above £60,000
It can taper your personal allowance above £100,000, at £1 lost for every £2 over

None of these are visible if you think of the interest as an expense. They are the reason a landlord can be no better off in cash terms and noticeably worse off after tax.

The cap on the relief

The reducer is limited to 20% of the lowest of three figures: your finance costs, your property profits, and your adjusted total income above the personal allowance.

If the cap bites, the unused part is carried forward to use against property profits in a later year. There is no time limit on the carry forward, so a loss-making year is not a year in which the relief disappears. Keep the figure, because you will need it.

Who this does not apply to

The restriction targets individuals, partnerships with individual partners, and trustees letting residential property. It does not apply to:

Limited companies, which deduct finance costs as a normal business expense. This is the main reason people incorporate, though the stamp duty and capital gains cost of moving property into a company usually dwarfs the annual saving, so take advice before doing it
Commercial property, where box 26 applies and interest is fully deductible
Furnished holiday lettings were historically outside it too, but that regime was abolished from April 2025, so FHL finance costs now fall under the same restriction

Why this matters more under MTD

From April 2026 you are submitting figures four times a year rather than once. A category error that used to be caught by an accountant in January now gets repeated across four quarterly updates before anyone looks at it.

It is also the mistake automated statement conversion gets wrong most often, because a letting agent statement or bank feed shows "mortgage payment" as a single outgoing with no hint that HMRC splits it three ways: the capital element is not deductible at all, the interest goes to box 44, and any arrangement fees are usually box 44 too.

Letting agent statement converterMaps every line of a statement to its SA105 box, and keeps residential finance costs out of your expenses where they belong.Summary free, £19 to download Does MTD apply to me?Check whether you are mandated, and from which April, using your 2024/25 figures.Free

Making Tax Digital for landlordsThe thresholds, the quarterly deadlines and who is exempt, in one place. Turnover or profit?Turnover. And mortgage interest does not reduce it. Statement to CSV, box by boxWhich SA105 box each line of a letting agent statement belongs in.

Checked against HMRC guidance on 19 September 2026. This is general information, not tax advice. GlideOps is not a firm of accountants and is not regulated to give tax advice. If your position involves partnerships, trusts, mixed use or incorporation, take proper advice before acting.

All free tools for landlords and executors