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If you rent out a residential property with a mortgage, your 2025/26 Self Assessment return is due by 31 January 2027 if you file online. Here is how the mortgage interest rule works now, who it affects and what to prepare.
If you file a paper return, HMRC must receive it by 31 October 2026. Understanding this rule helps you claim the right amount and avoid overpaying.
From 2017/18, the tax relief for residential landlords was reduced step by step. The restriction has been fully in place since 2020/21.
For your 2025/26 tax return (due 31 January 2027 if you file online), you will need records of all mortgage interest paid between 6 April 2025 and 5 April 2026. Your lender’s annual statement is a good place to start.
Before 2017: The interest on your mortgage was fully deductible from your rental income. Only the interest counts. The capital you repay is not deductible.
After 2017: The tax relief that landlords of residential properties get for finance costs has been restricted. The reduction is based on the basic rate of Income Tax, which is 20% for 2026/27. HMRC sets out how it works, with case studies.
You can claim a basic rate tax reduction. The table shows how this changed from 2016/17 to 2020/21.
| Tax year | Mortgage interest deductible 100% | Deductible at a 20% tax credit |
|---|---|---|
| 2016/17 | 100% | – |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 | – | 100% |
The restriction is now fully in place. For 2026/27 the tax reduction is 20%. From 2027/28 it is 22%. Two questions decide how much this affects you:
The tax reduction is 20% of the lowest of these three amounts:
The reduction lowers the tax you owe. It cannot create a tax refund.
Example: Sam, a basic rate taxpayer (2026/27)
| Item | Amount |
|---|---|
| Salary | £30,000 |
| Rent received | £14,000 |
| Other allowable expenses (not interest) | £2,000 |
| Property profit before finance costs | £12,000 |
| Total income (salary plus property profit) | £42,000 |
| Taxable income after the £12,570 Personal Allowance | £29,430 |
| Tax at 20% | £5,886 |
| Less tax reduction: 20% of £8,000, the lowest of £8,000 (interest), £12,000 (profit) and £29,430 (income above the Personal Allowance) | -£1,600 |
| Tax to pay | £4,286 |
For a basic rate taxpayer, a deduction of £8,000 from profit and a 20% reduction on £8,000 give the same result. In both cases Sam pays £4,286. The figures use the rates for England, Wales and Northern Ireland. Scottish Income Tax bands are different.
It can. The change matters most if the restriction pushes you into the higher rate.
Example: Alex, a higher rate taxpayer (2026/27)
| Item | Amount |
|---|---|
| Salary | £45,000 |
| Rent received | £18,000 |
| Other allowable expenses | £2,000 |
| Property profit before finance costs | £16,000 |
| Mortgage interest paid | £8,000 |
| Total income | £61,000 |
| Taxable income after the Personal Allowance | £48,430 |
| Tax at 20% on the first £37,700 | £7,540 |
| Tax at 40% on the remaining £10,730 | £4,292 |
| Tax before the tax reduction | £11,832 |
| Less tax reduction: 20% of £8,000 (the lowest of £8,000, £16,000 and £48,430) | -£1,600 |
| Tax to pay under the current rule | £10,232 |
| For comparison: tax if the full £8,000 were deductible from profit | £8,632 |
Under the current rule, Alex pays £1,600 more than if the interest could be deducted in full. The extra cost comes from the 40% rate. The interest is no longer taken off Alex’s profit, so it is taxed at 40%, and Alex gets back 20%.
Not sure where you stand? Taxfix can help you work out how this rule could affect your tax bill.
New to rental income tax?
Use this checklist for your 2025/26 return:
Taxfix guides you through each of these steps.
Keep these records for at least 5 years after the 31 January tax return deadline for each tax year.
From 6 April 2027, property income is taxed at separate rates of 22% (basic), 42% (higher) and 47% (additional) in England and Northern Ireland. Scotland has its own Income Tax rules, and Wales has its own Income Tax powers, so check HMRC’s guidance for your position.
Finance cost relief for residential landlords is given at the property basic rate of 22% from 2027/28.
These changes were announced at the Autumn Budget 2025.
Married couples and civil partners who live together are treated as entitled to equal shares of the income from jointly owned property, unless an exception applies. A Form 17 declaration can set a different split where the actual ownership shares are different.
Other joint owners share the income in line with their actual ownership shares. Each owner’s share of the rental profit and finance costs is worked out separately.
Your share of jointly owned property income counts towards your qualifying income for Making Tax Digital for Income Tax. Read our joint ownership guide.
Your Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000. It is zero if your adjusted net income is £125,140 or more. This changes how much of your income falls into the higher rates, so check your full position. Read our guide for high earners.
Making Tax Digital for Income Tax (MTD) applies to sole traders and landlords based on their qualifying income. Qualifying income is your gross self-employment and property income, before expenses.
The mortgage interest credit still applies under MTD. The change is how you keep records and report your income. Read our Making Tax Digital guide.
Need more help to understand your options?
We can help. We offer one-off, personal tax advice from an accredited accountant, especially for landlords. Whether you’re looking to be more tax-efficient, getting your head around the changes in rental properties or anything else, we’ve got your back.
Just £139 per consultation. Learn more here.
Not in full. Only the interest and other finance costs count. The capital you repay is not deductible, and the interest gives you a tax reduction rather than a deduction.
Not from rental income if you are an individual residential landlord. Instead, you get a basic rate tax reduction of 20% for 2026/27, capped by your property profit and your income above the Personal Allowance.
No. Individual residential landlords cannot deduct mortgage interest from rental income. They get a 20% tax reduction instead (2026/27).
No, not as a deduction. Individual landlords cannot claim mortgage interest as an allowable expense. The interest reduces your tax bill through the 20% tax reduction.
None is deducted from your rental profit. The reduction is 20% of the lowest of your finance costs, your property profit and your income above the Personal Allowance.
Yes, but as a tax reduction rather than a deduction. From 2027/28 the rate is 22%.
Your UK property lettings are treated as one business for working out your profit, so you add up the rent and expenses across all of them. The 20% reduction is then worked out on the combined figures. The rule applies to you as an individual, whether you have one property or several.
This article provides general information only and is not personalised tax advice.
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