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The mortgage interest tax relief changes that were rolled out between 2017 and 2020 impacted many landlords – but not equally.
In the 2025/26 tax year, landlords can claim a 20% tax relief on whichever of the following costs is lowest 👇
As of 2020, you can’t deduct mortgage interest as an expense on your tax return.
Here are three examples of how these changes impacted landlords. They all use figures and rates from the 2020/21 tax year.
Let’s say that you had:
Before these changes, mortgage interest was a completely claimable expense: your taxable rental profit was rental income minus mortgage interest and expenses. Between 2017 and until 2020, the amount claimable depleted every year until it reached zero.
| Before 2017 | After 2020 | ||
|---|---|---|---|
| Property profits | £5,000 | Property profits | £18,000 |
| Total income | £42,000 | Total income | £55,000 |
| Taxable income (2017 band) | Tax | Taxable income (2021 band) | Tax |
| £11,000 x 0% (allowance) | £0 | £12,570 x 0% (allowance) | £0 |
| £31,000 x 20% (basic rate) | £6,200 | £37,700 x 20% (basic rate) | £7,540 |
| £0 x 40% (higher rate) | £0 | £4,730 x 40% (higher rate) | £1,892 |
| Tax before relief | £6,200 | Tax before relief | £9,432 |
| Mortgage relief | applied | Tax credit | £2,600 |
| Payable tax | £6,200 | Payable tax | £6,872 |
From 6th April 2020, you could claim a 20% tax credit instead of the mortgage interest.
So even with higher personal allowance and tax bands in 2020 vs 2017, landlords still ended up paying ~£700 more in tax in this example. This is because the new rules pushed you into the higher tax band.
If you had roughly the same income figures as above but your income from self-employment was a little bit less, here’s the impact this would have had.
| Before 2017 | After 2020 | ||
|---|---|---|---|
| Property profits | £5,000 | Property profits | £18,000 |
| Total income | £36,000 | Total income | £49,000 |
| Taxable income (2017 band) | Tax | Taxable income (2020 band) | Tax |
| £11,000 x 0% (allowance) | £0 | £12,570 x 0% (allowance) | £0 |
| £25,000 x 20% (basic rate) | £5,000 | £36,430 x 20% (basic rate) | £7,286 |
| £0 x 40% (higher rate) | £0 | £0 x 40% (higher rate) | £0 |
| Tax before relief | £5,000 | Tax before relief | £7,286 |
| Mortgage relief | applied | Tax credit | £2,600 |
| Payable tax | £5,000 | Payable tax | £4,686 |
Because the taxable income (even without deducted mortgage interest) was still out of the higher tax band, you paid £300 less in tax.
Another way that landlords could benefit from the 2020 changes was by carrying forward unclaimed finance costs.
The 20% tax credit applies to the lowest of the following expenses:
If you invest in your property, for example you do repairs or extensive renovations, then your property profits (rental income minus expenses) might be the lowest.
In this case, you apply the 20% tax credit to this amount and claim the difference between property profits and mortgage interest next year!
Let’s look at the same example, but with some added property expenses – and let’s say that we increased our rental income too (since we modernised our flat):
| After 2020 | |
|---|---|
| Property profits | £10,000 |
| Total income | £47,500 |
| Taxable income (2020 band) | Tax |
| £12,570 x 0% (allowance) | £0 |
| £36,430 x 20% (basic rate) | £7,000 |
| £0 x 40% (higher rate) | £0 |
| Tax before relief | £7,286 |
| Tax credit | £2,000 |
| Payable tax | £5,286 |
| Mortgage interest – property profits | £3,000 |
| This can be claimed as allowable expense in 2024/25 |
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