How Much Is the Mortgage Interest Restriction Costing You?
Since April 2020, individual landlords can no longer deduct mortgage interest as an expense from rental income. Instead, they receive a 20% tax credit. For basic rate taxpayers, the effect is neutral. For higher rate taxpayers, it means paying 40% tax on rental profit that includes mortgage interest they cannot deduct, offset only by a 20% credit. The difference can be thousands of pounds per year.
How to use
Enter your annual rental income, mortgage interest (interest only, not capital repayments), other allowable expenses (repairs, insurance, letting agent fees), and your other income from employment or pension. The tool shows your tax under the current rules alongside what you would have paid under the old rules, and the annual difference.
Frequently Asked Questions
Does this restriction apply to limited companies?
No. The Section 24 finance cost restriction applies only to individual landlords letting residential property. If your rental properties are held in a limited company, mortgage interest remains fully deductible against rental income. This is one reason some landlords have incorporated their property portfolios.
Does it apply to commercial property?
No. The restriction applies only to residential property. Commercial property landlords can still deduct finance costs as an expense in full.
What counts as finance costs?
Mortgage interest, interest on loans used to buy or improve the property, and arrangement fees for those loans. Capital repayments are not finance costs and were never deductible.
Can I offset losses created by the restriction?
The restriction can create a situation where you are taxed on more than your actual profit. However, the 20% tax credit can create or increase a loss for carry forward. The interaction with other reliefs is complex and worth discussing with an accountant.
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Book a Free Discovery Call© Imperial Consulting Limited, trading as Grosvenor.Solutions. This tool is for illustrative and educational purposes only. It is not tax advice. Your circumstances may differ. Always consult a qualified professional before making tax decisions. Calculated using 2026/27 HMRC published rates for England, Wales and Northern Ireland.