​For example, for non-residential lets (commercial property) or companies the rules are more generous: full deduction may apply.

If you borrow more than the value of the property when first let, the excess borrowing may not qualify for relief in the usual way.

Mortgage Interest Tax Relief for Residential Lets

For landlords letting residential properties personally (i.e., individuals rather than companies), the mortgage interest tax relief regime is more restrictive.

Under Section 24 of the Finance (No. 2) Act 2015 the relief was phased in from 2017 and fully applied from April 2020: higher-rate and additional-rate taxpayers can no longer deduct full mortgage interest to compute rental profit.

Instead they receive a tax credit at the basic rate (20%) of their mortgage interest.

What this means in practice for 2025/26:

• You calculate your taxable profit on the full rental income less allowable expenses (excluding interest).

• You pay income tax on that profit based on your marginal rate.

• Then you receive a tax credit equal to 20% of the mortgage interest (and other qualifying finance costs) you’ve paid.

• If you’re a higher or additional-rate taxpayer, your tax relief via this credit is much less generous than the previous full-deduction regime.

• Basic-rate taxpayers are less affected, but the shift still changes the calculation of profit and may push you into a higher rate band if you didn’t plan for it.

Example (based on 2025/26 scenario):
Suppose you earn £11,400 rental income and pay £7,200 in mortgage interest. Under the new relief rules you’d pay tax on the full £11,400 (before deduction of interest). Then you’d receive a credit of £1,440 (20% of £7,200). A higher-rate taxpayer might end up paying substantially more tax than under the old system.

Mortgage Interest Tax Relief for Other Lets (Non-Residential, Companies)

If the letting is non-residential (e.g., commercial property) or you hold the property via a company, the mortgage interest tax relief regime differs:

• For non-residential lets, the interest and finance costs remain fully deductible when computing taxable profit.

• If you own the property via a limited company, the restriction under Section 24 does not apply, meaning interest can still be deducted as a business expense subject to corporation tax rules.

Thus, for many landlords, moving properties into a company structure has been a strategy to regain more generous interest relief — though that strategy comes with its own considerations (lending terms, stamp duty, tax on extraction of profits, etc.).

Key Changes for the Tax Year 2025/26

For the 2025/26 tax year, there are a few important rule changes and clarifications you should be aware of when it comes to mortgage interest tax relief:

• The special regime for Furnished Holiday Lettings (FHLs) has been abolished from 6 April 2025. This means that many FHLs will now be taxed under the standard property income rules and thus the full deduction of mortgage interest as a business expense is no longer available in many cases; instead the 20% tax-credit regime applies to certain individuals.

• Losses from FHLs can now be offset more flexibly against other property income (for individuals) or company income (for companies) under the new rules post-April 2025.

• The restriction on new capital allowances for plant and machinery in FHL businesses was introduced for tax year 2025/26 (although this is broader than just mortgage interest relief).

• The credit rate for mortgage interest relief remains at 20%; there is no indication that this rate has been increased for 2025/26.

In short: for most residential landlords in 2025/26, the mortgage interest tax relief position remains the same (full deduction removed, replaced by 20% tax credit), but if you operated as an FHL or are considering structuring via a company, the landscape has shifted and you’ll need to review your position carefully.

Practical Tips for Landlords: Managing Your Mortgage Interest Tax Relief

• Review your borrowing level: Since interest no longer reduces your rental profit if you’re an individual residential landlord, high borrowing increases taxable profit and may push you into a higher tax band.

• Check your structure: If your property is let via a company or is a non-residential let, you may still deduct interest fully. For FHLs, if you’re operating this way as an individual you need to be aware of the March 2025 changes.

• Keep accurate records: You’ll still need to record mortgage interest, loans, and other finance costs carefully, as they feed into the tax-credit calculation.

• Consider tax rate implications: The 20% tax credit is the same whether you are basic, higher or additional rate, so higher-rate taxpayers lose the ability to offset at their higher rate.

• Explore alternative reliefs: Depending on your circumstances, incorporation, adjusting ownership, or restructuring may help (but always seek bespoke advice).

• Plan ahead for disposals: If you’re selling properties, changes to capital gains and reliefs may intersect with how mortgage interest and other costs have been treated.

• Monitor regulatory developments: Tax for landlords continues to evolve, and the 2025/26 year introduces some important shifts (especially for FHLs).

​How Trueman Brown Chartered Accountants Can Help with Mortgage Interest Tax Relief

If you’re wondering how the rules around mortgage interest tax relief apply to your portfolio — and how you can optimise your position — we’re here to help.

At Trueman Brown, we specialise in advising landlords on tax compliance, structuring and relief opportunities.

You can contact us at:
Email: mark@truemanbrown.co.uk
Phone: 01708 397262

We will:

• Review your property portfolio, borrowing arrangements and letting structure.

• Model how the 2025/26 rules affect your mortgage interest relief and tax liability.

• Advise on whether your structure (individual vs company) remains optimal.

• Assist with your annual tax return, ensuring mortgage interest tax relief and other deductions/credits are correctly claimed.

• Offer proactive planning for disposals, new purchases, ownership changes and evolving tax rules.

Don’t let changes in mortgage interest tax relief catch you unprepared — speak to us today and ensure your letting business is tax-efficient and compliant.

FAQ: Mortgage Interest Tax Relief – Common Questions

Q: What exactly is mortgage interest tax relief?
A: It refers to the tax relief available on borrowing costs (such as mortgage interest) incurred by landlords. Under current rules for residential individual landlords it means the 20% tax credit on interest rather than deduction from profit.

Q: Do I still get full deduction of mortgage interest if I let residential property?
A: No, for individual landlords letting residential property the full deduction was phased out by April 2020. Now you get a 20% tax credit instead.

Q: Does the 20% tax credit apply to non-residential lets or company landlords?
A: Not necessarily. Non-residential lets and company-held lettings may still allow full deduction of interest. The 20% tax credit regime mainly affects individual residential landlords.

Q: How have things changed for 2025/26?
A: Two key changes: the abolition of the FHL regime means many holiday let landlords now fall under the same rules as residential landlords (so mortgage interest relief may be limited). Also, some other allowances have changed.

Q: If I have high mortgage interest, will I end up paying more tax?
A: Potentially yes. Since you cannot deduct the interest from profit (if you’re an individual residential landlord), your taxable profit may be higher and you could pay more tax even though you’ve incurred costs. The 20% credit does not fully offset that.

Q: Would moving my property into a company help?
A: It might, since companies are generally not subject to the same Section 24 restrictions on mortgage interest relief. But you must consider corporation tax, extraction of profits, stamp duty and other factors. It’s not a universal solution — professional advice is essential.

Q: What should I do now to make sure I’m compliant and optimised?
A: Review your portfolio, your borrowing structure, your ownership and tax structure. Work with an accountant familiar with landlord tax issues to model the impact of mortgage interest relief rules on your position for 2025/26 and beyond.