When it comes to property investing, every year some landlords hand over more tax to the HMRC than they need because they’ve become confused by, or forgotten about, mortgage interest relief.
It’s true, the system has changed from the time when landlords could deduct 100% of their mortgage interest from their rental income before paying tax. Then, if you earned £10,000 in rent and paid £8,000 in interest, you only paid tax on the £2,000 ‘profit’.
Since the introduction of Section 24 (of the Finance Act 2015) landlords now pay tax on their turnover (gross income) and get a small credit back at the end for the mortgage interest relief– yet we are coming across a number of landlords who fail claim the relief at all.
Here is how mortgage interest relief works in 2026:
Also, bear in mind, if your property made a loss last year, you may be able to carry forward the unused finance cost relief to future years.
As we move through 2026, the tax environment is changing.
In April 2026, Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is being introduced for landlords with turnover of £50,000 and above. Under MTD for ITSA, those affected must start using compatible software to keep digital records and send quarterly updates to HMRC. If you are self-employed as well, this £50,000 limit covers turnover from sole trade and rental income.
Also be aware that from April 2027, the Government plans to introduce separate, higher tax rates for property income (potentially 22%, 42%, and 47%). Your 20% credit will become even more vital as your base tax rate rises.
Because Section 24 only applies to individuals, many investors are now buying through a limited company.
The benefit here is that companies can still deduct 100% of mortgage interest as a business expense before paying Corporation Tax.
However, moving an existing property into a company often triggers Stamp Duty Land Tax and Capital Gains Tax, so it’s usually a strategy for new purchases rather than a quick fix for old ones.
If you are a property investor, and would like advice on tax planning around your portfolio, please get in touch with the tax team at Optimum. We work with landlords across Swindon, Wiltshire, Cheltenham and Gloucestershire.
