The way landlords get tax relief on their mortgage interest changed dramatically a few years ago, and it still catches people out. If you own a buy to let with a mortgage, understanding the restriction is essential to knowing your real return. This guide explains how mortgage interest tax relief works for landlords in 2026/27.
How relief used to work
Until the rules changed, landlords could simply deduct all of their mortgage interest from their rental income before working out the tax, like any other business expense. This meant higher rate taxpayers effectively got relief at 40%. That full deduction has now gone for residential lettings.
The current restriction
Under the current rules, often called Section 24, you can no longer deduct mortgage interest from your rental income. Instead, you work out the tax on your full rental profit, and then receive a tax reduction worth 20% of your finance costs, including mortgage interest. In effect, relief is now limited to the basic rate for everyone.
Why higher rate landlords pay more
For a basic rate taxpayer, the change is broadly neutral, because they were only getting 20% relief anyway. For higher and additional rate landlords, it is a real increase in tax, because they used to get 40% or 45% relief and now get only 20%. It can even push some landlords into a higher tax band, because the full rent counts as income before the credit is applied.
A simple illustration
Imagine a higher rate landlord with £15,000 of rent and £6,000 of mortgage interest. They are taxed on the full £15,000 profit, but instead of deducting the £6,000, they get a tax credit of 20% of it, which is £1,200. Under the old rules they would have deducted the £6,000 and saved £2,400 in tax, so the change has cost them £1,200.
Does a limited company help?
Because the restriction applies to individuals but not companies, some landlords hold property through a limited company, where mortgage interest is still fully deductible against profits. This is not automatically better, as there are extra costs, getting money out of the company is taxed, and moving existing property in can trigger Capital Gains Tax and Stamp Duty. It needs the numbers run carefully.
What landlords can do
Beyond considering a company, landlords can make sure they claim all their other allowable expenses, consider how property is owned between spouses to use lower tax bands, and plan around the way the full rent now counts as income. Good advice is especially valuable for mortgaged higher rate landlords.
Frequently asked questions
Can landlords still deduct mortgage interest?
Not from rental income directly. Instead you get a tax reduction worth 20% of your finance costs, so relief is limited to the basic rate.
Why has my buy to let tax bill gone up?
Because the full rent now counts as income and mortgage interest only gives a 20% credit, higher rate landlords get less relief than before and can be pushed into a higher band.
What is Section 24?
The common name for the rules that restricted mortgage interest relief for residential landlords to a basic rate tax credit.
Does a limited company avoid the restriction?
A company can still deduct mortgage interest in full, but there are extra costs and tax to consider, so it is not automatically better.