Buy-to-Let Mortgage Interest Relief UK 2026

The buy-to-let mortgage interest relief rules in 2026 are still doing the job they were designed for back in 2015 — they push higher-rate landlords closer to incorporating, and they catch out anyone who has not updated their tax calculation since the phase-in finished in April 2020. The headline mechanic is simple: mortgage interest is no longer a deductible expense. Instead, individual landlords get a 20% basic-rate tax credit at the end of the calculation.

This guide covers buy-to-let mortgage interest relief UK 2026 — how the credit is calculated, what changed during the 2017 to 2020 phase-in, two worked examples (basic-rate and higher-rate landlords), the income inflation trap that pulls landlords into the wrong tax band, and the routes some landlords have used to limit the damage.

Section 24 and how the BTL mortgage interest rule works

Section 24 of the Finance (No. 2) Act 2015 introduced a phased restriction. From April 2017 onwards, mortgage interest started to be removed from the list of deductible expenses for individual landlords of residential property. By April 2020 the change was complete. None of the interest is deductible in the way it used to be.

The replacement is a tax credit:

Calculate rental profit ignoring mortgage interest (rent minus all other allowable expenses).
Add the profit to your other taxable income for the year.
Calculate Income Tax on the total in the normal way.
Apply a credit at the basic rate (20%) of the lower of: total mortgage interest paid, rental profit, or taxable income after personal allowance.

The credit is non-refundable. If your total tax bill is less than the calculated credit, you cannot claim back the excess. Any unused portion can be carried forward indefinitely against future rental profits.

The mechanic is set out in detail in the HMRC Property Income Manual.

The 2017 to 2020 phase-in

For landlords who started their portfolio before 2017, the impact appeared gradually:

Tax year	Deductible interest	Treated as basic-rate credit
2017/18	75%	25%
2018/19	50%	50%
2019/20	25%	75%
2020/21 onwards	0%	100%

The shift was deliberately spread over four years so the cash impact would be absorbed. The structural impact (higher-rate landlords paying more tax on the same economic profit) was always going to land.

Landlords who first bought a property after April 2020 never saw the deduction at all. For them the rule looks normal — interest creates a credit, end of story. Long-running landlords sometimes still account as if some part of the interest is deductible. It is not.

Worked example one — basic-rate landlord

Sarah owns one buy-to-let. Annual rent £14,400. Allowable expenses (letting agent, insurance, repairs, gas safety) £3,000. Mortgage interest £6,000. Other income — a £30,000 employed salary.

Under the pre-2017 rules Sarah's tax position would have been:

Rental profit: £14,400 − £3,000 − £6,000 = £5,400.
Total taxable income: £30,000 + £5,400 = £35,400, all within the basic rate band.
Tax on the rental slice: £5,400 × 20% = £1,080.

Under the 2026 Section 24 rules Sarah's position is:

Rental profit (mortgage interest excluded): £14,400 − £3,000 = £11,400.
Total taxable income: £30,000 + £11,400 = £41,400, still all within the basic rate band.
Income Tax before credit: £11,400 × 20% = £2,280.
Mortgage interest credit: £6,000 × 20% = £1,200.
Net tax on rental slice: £2,280 − £1,200 = £1,080.

Sarah's bill is identical. For a pure basic-rate landlord whose total income stays inside the basic band even after Section 24, the regime is revenue-neutral. The change feels confusing but the cash result is the same.

Worked example two — higher-rate landlord

James owns two buy-to-lets. Combined rent £36,000. Other expenses £8,000. Mortgage interest £15,000. Other income — a £45,000 salary.

Under the pre-2017 rules his position would have been:

Rental profit: £36,000 − £8,000 − £15,000 = £13,000.
Total income: £45,000 + £13,000 = £58,000.
Personal allowance £12,570, basic rate to £50,270, the £8,000 above £50,270 taxed at 40%.
Approximate tax on rental slice (after allocating bands): about £4,400.

Under the 2026 Section 24 rules his position becomes:

Rental profit (interest excluded): £36,000 − £8,000 = £28,000.
Total income: £45,000 + £28,000 = £73,000.
Income Tax on the rental slice — mostly in the higher band — about £9,300 before the credit.
Mortgage interest credit: £15,000 × 20% = £3,000.
Net tax on rental slice: about £6,300.

James pays roughly £1,900 more tax under the new rules than he would have under the old ones. The gap widens further as mortgage rates rise. A landlord whose interest bill rises from £15,000 to £22,000 sees the higher-rate gap grow by another £1,400 a year.

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The income inflation trap

The bigger problem for many landlords is not the headline tax rise but the way Section 24 inflates their taxable income on paper.

Because mortgage interest is no longer deductible, the gross rental figure flows through to your "adjusted net income" almost in full. That single number drives several other tax knock-ons:

Personal allowance taper. Above £100,000 of adjusted net income, the £12,570 personal allowance starts to taper at £1 for every £2 of additional income. By £125,140 the allowance is gone. Landlords with a £70,000 salary and £40,000 of geared rental profit (Section 24 basis) cross £100,000 — and lose part of their personal allowance — even though their economic profit may be modest.
Child benefit High Income Tax Charge. The clawback now starts at £60,000 of adjusted net income and runs to £80,000. Landlords with growing portfolios slip into this band through Section 24 inflation rather than real cash income gains.
Pension annual allowance taper. High earners with adjusted income above £260,000 lose some of their £60,000 pension annual allowance. Section 24 has pushed landlords into this group too.
Student loan repayments. Plan-2 graduates repay 9% above £27,295 of total income. Section 24 inflation pulls otherwise low earners into student loan repayments on the same rental cash they had last year.

These second-order effects can cost more than the direct tax change. A landlord might pay an extra £1,500 of direct tax under Section 24 and another £2,500 of lost personal allowance, child benefit, and student loan combined.

Finance costs that qualify for the credit

Not all finance costs are equal. The credit applies to:

Mortgage interest on buy-to-let loans secured against residential rental property.
Interest on personal loans used to buy a rental property or fund improvements.
Mortgage arrangement fees, product fees, broker fees, valuation fees on the loan.
Discounts on zero-coupon bonds used to fund a property purchase.

It does not apply to:

Repayments of capital. Only the interest element of each mortgage payment counts.
Interest on a loan used to buy something other than rental property, even if the loan is secured on the property.
Penalty interest or default interest where the loan is in arrears.

Most letting agents send a year-end statement showing rent received and expenses paid. The mortgage interest figure has to come separately from the lender's annual tax statement.

Routes some landlords take to limit Section 24

There is no clever scheme that makes Section 24 go away for an individual landlord. The viable responses are structural.

Incorporation. A limited company landlord is outside Section 24 entirely. Mortgage interest is fully deductible against rental profit, and corporation tax applies on what is left. The cost is the SDLT and CGT on the transfer plus higher mortgage rates on limited company products. Incorporation only pays back if you intend to hold the portfolio for at least eight to ten years.
Reducing leverage. Paying down mortgage capital reduces interest, which reduces the inflation effect. A 75% LTV portfolio at current rates is hit harder than a 60% LTV portfolio of the same gross value.
Joint ownership rebalancing. Married couples and civil partners can vary their beneficial ownership share to put more of the rental profit on the spouse with less other income. The election uses Form 17 and a declaration of trust; the spouses must actually own the unequal share, not just declare it for tax.
Switching tenancy type. Some landlords have moved from standard residential lets to short-term holiday lets. After April 2025 the furnished holiday let advantage is largely gone — the same Section 24 treatment now applies — so this route is no longer the escape it used to be.
Selling and reinvesting in a different asset class. A landlord with a modest portfolio and a high marginal rate may simply find that after Section 24 the after-tax yield is not enough to justify the work.

Each route has SDLT, CGT, and mortgage implications. None of them should be acted on without running the numbers for your actual portfolio first.

FAQ

Frequently asked questions

What is the Section 24 tax credit?

Section 24 of the Finance (No. 2) Act 2015 replaced mortgage interest as a deductible expense with a 20% basic-rate tax credit. Landlords still pay the interest but can no longer subtract it from rental income to calculate taxable profit. Instead they receive a credit worth 20% of the interest, capped at the tax due on the rental income.

Does it apply to all landlords?

It applies to individual landlords of residential property in the UK. Limited company landlords are unaffected — they continue to deduct interest as a finance cost against profit. Furnished holiday lets were brought into the same Section 24 regime from April 2025 alongside their wider tax changes.

Can I still deduct mortgage interest as an expense?

No. Since April 2020 the full restriction has been in force. Mortgage interest, arrangement fees, and loan-related finance costs no longer reduce taxable rental profit. They only generate the 20% basic-rate credit at the bottom of the calculation.

Why is my taxable rental profit higher than I expect?

Because mortgage interest is no longer a deduction. A landlord with £24,000 rent, £6,000 expenses, and £10,000 mortgage interest used to report taxable profit of £8,000. Today they report taxable profit of £18,000 and receive a £2,000 tax credit at the bottom. Higher-rate taxpayers pay 40% on the £18,000 and the credit only refunds at 20%.

Does Section 24 apply to commercial property?

No. Commercial property and mixed-use property held by individual landlords continue to deduct mortgage interest in full against rental income. Section 24 was deliberately narrowed to residential let property only.

This article is general guidance, not personal tax advice. Speak to a qualified accountant before acting on it.