How is rental income taxed when you have a mortgage?
By the VoxaMTD team. Last verified 31 October 2026
Individual landlords paying Income Tax cannot claim mortgage interest as an expense. Since 6 April 2020, relief on residential finance costs is limited to the basic rate. Only the interest part of a mortgage payment counts, not the capital.
Finance costs cover mortgage interest, loan interest and overdrafts used for the rental business. Where a loan covers both residential and commercial property, the interest must be reasonably apportioned.
Companies paying Corporation Tax are not affected and can claim interest on property loans. The restriction is often called Section 24.
You cannot use the property allowance if you claim the tax reducer for finance costs. Keep your lender's annual interest statement with your records, because it separates the interest from the capital you repay. Only the interest figure is relevant to the tax reduction.
Read next
- What is Finance cost restriction? →
- Mortgage Interest Under MTD: Section 24 Reporting →
- Section 24 calculator →
- Section 24 in VoxaMTD →
Sources
- GOV.UK: Income Tax when you rent out a property: working out your rental income
- GOV.UK: Renting out a property: paying tax
- GOV.UK: Tax-free allowances on property and trading income