Can I Claim Tax Relief on Mortgage Interest UK?

Mortgage interest tax relief in the United Kingdom has undergone significant changes over the years, moving from a broad benefit for homeowners to a more restricted provision primarily for residential landlords. Historically, Mortgage Interest Relief at Source (MIRAS) allowed individuals tax relief on interest paid on mortgages for their main homes. Introduced in 1983, this relief was gradually reduced and abolished in April 2000, marking a shift away from direct tax subsidies for owner-occupied housing.

The current landscape for mortgage interest relief is considerably different. Homeowners generally cannot claim relief on mortgages for their primary residences. The focus of existing relief has shifted to individuals who let out residential property. This change, phased in from April 2017 and fully effective by April 2020, replaced the previous system where landlords deducted all finance costs from rental income before calculating taxable profits.

Eligibility for Mortgage Interest Relief

Eligibility for mortgage interest relief in the UK is specific to individual landlords of residential properties. Individuals cannot claim relief on mortgage interest paid for their main residence. The current tax credit applies to finance costs incurred on residential buy-to-let properties, distinguishing it clearly from personal homeownership.

The relief is available to individuals, partnerships, and trusts that own residential property and derive rental income. Unlike individuals, companies can still deduct mortgage interest and other finance costs in full from their rental income for corporation tax purposes. Landlords of commercial properties or Furnished Holiday Lettings (FHLs) were also exempt from these restrictions, though FHL tax treatment is subject to changes from April 2025.

Eligible finance costs include regular mortgage interest payments, interest on loans for purchasing land, property, or furnishings for the rental property. This also extends to incidental costs of obtaining finance, such as mortgage arrangement fees, and fees incurred when taking out or repaying loans. Capital repayments of a mortgage are not considered finance costs and do not qualify for relief.

When a loan serves multiple purposes, such as for residential and commercial property or a self-employed trade, finance costs must be reasonably apportioned. Only the portion directly attributable to the residential property business is subject to these rules. This ensures relief applies precisely to the relevant property type, reflecting the specific tax treatment for residential buy-to-let properties.

How Mortgage Interest Relief is Calculated

Mortgage interest relief for individual landlords is no longer a direct deduction from rental income. Instead, it is provided as a basic rate tax credit, directly reducing the landlord’s income tax liability. This relief is consistently applied at the basic rate of income tax, currently 20%, regardless of an individual’s higher tax bracket.

The tax credit is calculated as 20% of the lower of three amounts:
Total finance costs not already deducted from rental income for the tax year, including any unused finance costs carried forward.
Property business profits for the tax year, after accounting for any brought-forward losses.
The individual’s adjusted total income exceeding their personal allowance, excluding savings and dividend income.

This limitation ensures the tax credit does not exceed the overall tax due on property income or the individual’s total taxable income. For instance, if a landlord pays £10,000 in eligible finance costs, they receive a £2,000 tax credit (£10,000 x 20%). If their property profits were only £8,000, the credit would be capped at 20% of £8,000, or £1,600, to prevent the credit from generating a tax refund or reducing tax on other sources of income.

Any finance costs not fully utilized in the current tax year due to these restrictions can be carried forward to calculate the basic rate tax reduction in subsequent years. This carry-forward mechanism ensures landlords can eventually benefit from the relief, even if their income or profits fluctuate. The shift to a tax credit system, rather than a direct expense deduction, can result in a higher taxable profit for some landlords, potentially pushing them into a higher income tax bracket.

Claiming Mortgage Interest Relief on Your Tax Return

Claiming mortgage interest relief requires individual landlords to file a Self Assessment tax return with His Majesty’s Revenue and Customs (HMRC). This ensures all property income and relevant finance costs are accurately reported. The primary form for this is the SA105 UK Property supplementary page, submitted alongside the main SA100 tax return.

When completing the SA105 form, landlords provide financial figures for their property business. This includes total rental income received and all allowable expenses incurred, excluding finance costs. The full amount of residential property finance costs for the year must be entered in the designated box, typically Box 44 on the SA105.

The tax system calculates the 20% basic rate tax reduction based on the reported finance costs. This calculation factors in limitations related to property profits and adjusted total income. Landlords must ensure precise records of all income and expenses to support the figures declared, as HMRC may request these for verification.

After all necessary information is accurately entered into the Self Assessment tax return, including the SA105 supplementary pages, the return can be submitted to HMRC. This can typically be done online through HMRC’s digital services or approved third-party software. Maintaining thorough records of all rental income, allowable expenses, and finance costs is important for fulfilling tax obligations and accurately completing the Self Assessment return.