Is My Buy-to-Let Mortgage Tax Deductible? The Honest Answer
Last updated 29 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team
Myth vs reality
The myth: “My mortgage is my biggest cost, so the whole payment comes off my rental income.” The reality: the capital you repay earns no relief whatsoever, and since 2020 the interest no longer reduces your profit either — it gives a flat 20% tax credit. For a higher-rate landlord that’s the single most misunderstood line on the whole tax return.
Ask ten landlords whether their buy-to-let mortgage is tax deductible and most will say “yes, obviously”. It’s an honest mistake — for decades it was broadly true. But two separate rules now stand in the way, and confusing them is how people end up with a tax bill far bigger than the profit they thought they’d made.
This guide separates the two parts of a mortgage payment, explains what changed in 2020, and shows the very different outcome for a company. It pairs with our deeper explainer on Section 24 and our mortgage interest relief calculator.
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Rental Profit Estimator 2026/27
See your taxable profit — remember mortgage interest is a 20% credit, not a deduction, and capital repayment isn't allowable at all.
Result
- Taxable profit (rent − expenses)
- £11,200
- Income Tax at 40%
- £4,480
- Less mortgage interest credit (20%)
- − £1,000
- Tax due on this property
- £3,480
- Income after tax
- £7,720
Individuals: Section 24 restricts interest to a 20% tax reducer. Companies deduct in full. Estimate only — not personal advice.
A mortgage payment is really two things
Every payment on a repayment mortgage splits into two parts, and the tax system treats them completely differently:
- Capital — the bit that pays down the loan balance. This builds your equity. It gets no tax relief at all, because repaying a debt isn’t a cost of running the property.
- Interest — the cost of borrowing. This is recognised — but, for individuals, only as a basic-rate tax credit, not a deduction from profit.
So the instinct to “put the whole mortgage through” is wrong twice over: half of it isn’t a cost, and the half that is gets restricted relief.
What Section 24 changed
Until 2017 a landlord deducted all mortgage interest from rental income before tax — so a 40% taxpayer effectively got 40% relief. Between 2017 and 2020 the government phased that out. From 2020/21 onwards the rule is fully in force: interest is no longer an expense; instead you get a reduction in your tax bill equal to 20% of the interest.
For a basic-rate landlord the cash result is roughly the same as before. For a higher-rate landlord it’s a real loss — relief halves from 40% to 20% — and, because your full rent (not rent-minus-interest) now counts as income, it can even push you into a higher band. From April 2027 the credit rises slightly to 22% in line with the new property basic rate.
Key mental switch: stop thinking “deduct the interest” and start thinking “20% of the interest comes off the tax bill at the end”. The numbers behave very differently.
Why companies are treated differently
Section 24 applies only to individuals, partnerships, trustees and estates. A limited company carrying on a property business sits outside it entirely and deducts mortgage interest in full against its profits before Corporation Tax. That single difference is the main reason landlords with large, highly-geared portfolios consider incorporating — though it brings its own costs and is rarely worthwhile for one or two properties. We weigh it up in limited company vs personal buy-to-let.
Get the interest split right automatically
LandlordTaxAi separates interest from capital on your mortgage payments and applies the Section 24 credit correctly — so your taxable profit is right the first time.
See how it worksA worked example
Leah, a higher-rate taxpayer, gets £18,000 rent. Her mortgage costs £9,000 a year in interest (plus capital she also repays). Other allowable costs are £3,000.
| Rent | £18,000 |
| Less other costs (not interest) | £3,000 |
| Taxable profit (interest NOT deducted) | £15,000 |
| Tax at 40% | £6,000 |
| Less 20% credit on £9,000 interest | −£1,800 |
| Tax due | £4,200 |
| Capital repayment | No relief at all |
Under the old rules Leah would have deducted the £9,000 interest and paid 40% on £6,000 = £2,400. Same property, same interest — the Section 24 mechanism costs her an extra £1,800, and not a penny of her capital repayment helps.
Frequently asked questions
Can I deduct my whole mortgage payment?
No. The capital part gets no relief, and the interest is a 20% tax credit rather than a deduction.
Is the interest still deductible?
Not from profit. Since 2020/21 individuals get a basic-rate (20%) reduction in their tax bill under Section 24 — so higher-rate landlords lost half their old relief.
Why is capital repayment ignored?
It repays a debt and builds equity rather than being a cost of letting, so tax only recognises the interest.
Do companies get full relief?
Yes — Section 24 doesn’t apply to companies, so they deduct interest in full. It’s a key reason some landlords incorporate.
What about arrangement and broker fees?
For individuals they’re finance costs too, so they fall under the same 20% credit rather than full deduction.
Does interest-only change things?
The interest is treated the same (20% credit). There’s simply no non-deductible capital element because you’re not repaying capital monthly.
Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 29 June 2026 · Researched against primary UK sources for the 2026/27 tax year: https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2054 (Section 24 interest restriction); https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income; https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords. This article is informational only and does not constitute tax advice. Check the latest details on GOV.UK or with a qualified accountant.