Questions and Answers

Can I claim mortgage interest as a deduction on my rental property accounts?

I have a portfolio of four rental properties and I want to ensure that I am claiming all relevant expenses against the income. I am a little confused over the changes to the claim of mortgage interest, can I claim this or not?

By Catherine Heinen, FCCA

You’re correct. There have been changes to the ability to claim mortgage interest on rental properties from April 2017. Initially, the costs were restricted to 75%, then 50% and then 25%. From the 2020/21 tax year, only a basic rate deduction was allowable.

This restriction does not affect limited companies who own rental properties, or furnished holiday lets.

The restriction is also known as the 20% tax credit for landlords, and provides 20% tax relief on the lower of:

Total finance costs
Property net profit before the finance costs have been deducted
Adjusted total income

If the lower of the three figures is not finance costs (point 1), the difference will be carried forward. Any unused finance costs will be carried forward and added to the total finance costs for the next tax year.

What other expenses can you claim against your property income?

Here are some examples, the list is not exhaustive.

Agency fees, service charges and ground rent
Insurance
Repairs and maintenance
Mileage to carry out landlord checks
Accountancy fees
Council tax and other utility costs on empty properties

What expenses can’t you claim against your property income?

Capital costs, including enhancements and improvements to the property
Costs that are not wholly and exclusively for the purpose of renting out the property

Need help with your landlord tax return?

Contact TaxAssist Accountants for a free, no-obligation consultation.

01626 202500

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Frequently Asked Questions

Allowable expenditure can be deducted against property income which reduceds your profits and tax liability. Keeping good accounting records is essential for ensuring your report your income and expenses accurately to HMRC and only pay as much tax and you should.

If you're not sure what expenses are allowable, take a look at our guide to landlord tax and allowable expenses.

When determining if repair costs can be included on your tax return, it's important to consider:

What state was the property in when you purchased it? What it in a fit state for renting out, or was some of the work carried out to get it to a fit state?
What type of property you are renting out? Furnished, unfurnished or a Furnished Holiday Let (FHL)?
Are the expenses you have incurred repairs to the building/furniture or improvements or enhancements?

For more information on how to proceed take a look at our detailed response on What tax relief can I claim on property repairs.

Date published 8 Nov 2023 | Last updated 13 Aug 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Catherine Heinen, FCCA

Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.

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