Landlord Mortgage Interest in MTD: What You Can Claim

Landlord Mortgage Interest in MTD: What You Can Claim

Mortgage interest is one of the biggest costs a landlord has - and one of the most frequently misreported in Making Tax Digital quarterly updates. Some landlords claim too little because they do not realise certain fees count. Others claim too much by including capital repayment. A handful miss it entirely. This guide explains exactly what HMRC allows, how to calculate it correctly, how to report it in your quarterly update, and the mistakes that are most likely to cause problems if HMRC asks questions.

Why Mortgage Interest Is Treated Differently for Landlords

If you are a landlord who is also self-employed, you will notice that your property income and your self-employment income are reported separately in MTD. The rules about what you can deduct are also different. See how expenses split between self-employment and property income in MTD.

For rental properties, HMRC does not allow you to deduct the full cost of mortgage interest directly from your rental profit any more. Instead, since 2020, residential landlords receive a tax credit worth 20% of their mortgage interest costs. This is applied at the end of the year during your final declaration - not during your quarterly updates.

This change - known as Section 24 - affects individual landlords who own residential property in their own name. It does not apply to furnished holiday lettings (though these rules are also changing), commercial property, or properties held inside a limited company.

What Mortgage Costs Are Allowable

Interest on a Buy-to-Let Mortgage

The interest portion of your monthly mortgage payment is the main cost HMRC recognises. This is the amount you are charged for borrowing money - not the part that pays down the loan itself.

Your mortgage lender will usually show you, either on a monthly statement or in an annual summary, how much of each payment was interest and how much was capital repayment. If you cannot find this, call your lender or log into your online account. Most lenders produce an annual mortgage interest certificate, which is the document HMRC expects you to keep.

Arrangement Fees and Lender Fees

If you took out or remortgaged a buy-to-let mortgage, the arrangement fee you paid to set it up is also an allowable cost. This includes:

• Mortgage arrangement fees paid to the lender
• Booking fees
• Completion fees charged by the lender

These can either be spread over the length of the mortgage (as HMRC technically requires, since they relate to the whole mortgage term) or claimed in full in the year you paid them. Many DIY landlords claim them in full in year one, which is a reasonable and widely accepted approach for smaller amounts. If you paid a large fee, it is worth being consistent about how you treat it year to year.

Early Repayment Charges

If you paid an early repayment charge when switching or repaying a mortgage on a rental property, this is generally allowable as a finance cost. Keep the statement from your lender that shows the charge.

Loan Interest for Property Improvements (With Caveats)

If you took out a loan specifically to fund repairs or improvements to a rental property, the interest on that loan may be allowable. The capital borrowed is not - only the interest. This gets complicated quickly if the loan was used for a mix of purposes, so be careful. If in doubt, only claim interest that clearly relates to the rental property.

What You Cannot Claim

Capital Repayment

If you have a repayment mortgage rather than an interest-only mortgage, part of every monthly payment reduces the amount you owe on the loan. That portion - the capital repayment - is not an allowable expense. You can only claim the interest element.

This is the single most common mistake landlords make. They add up their total mortgage payments and report that figure. You must separate the two.

Bridging Loan Fees

Bridging loans are short-term loans often used when buying a property quickly. HMRC's position on bridging loan interest is more complicated than it might appear. If the bridging loan was used to buy a property (rather than to fund repairs to an existing rental property), the interest may be treated as a capital cost rather than a revenue cost, meaning it is not deductible in the normal way. If you have used a bridging loan, it is worth getting specific advice for your situation rather than assuming it works the same as a standard mortgage.

Mortgage Broker Fees

Broker fees paid to an independent mortgage broker are generally not treated as a finance cost in the same way as lender fees. They may be claimable under a different expense category, but they are not part of the mortgage interest claim. Do not include them in the finance costs section of your quarterly update without thinking about where they belong.

Life Insurance and Buildings Insurance

Sometimes sold alongside a mortgage, these are separate costs. Buildings insurance is allowable, but under a different expense category. Life insurance is generally not allowable at all as a rental expense. Do not mix these in with mortgage interest.

How to Calculate Your Allowable Mortgage Interest

Here is a worked example to make this practical.

Worked Example: Repayment Mortgage

Say you have a buy-to-let property and your monthly mortgage payment is £900. Your lender's annual statement shows:

• Total paid in the year: £10,800
• Interest portion: £6,200
• Capital repayment portion: £4,600

You can only use the £6,200 figure. That is what you record as your finance cost across your quarterly updates for the year.

If this was split quarterly, you would need to find the interest figure for each quarter specifically - not just divide the annual total by four, because interest calculations change month by month as the outstanding balance reduces.

How to Find the Quarterly Split

Most lenders provide monthly breakdowns. To find your quarterly figure:

1. Log into your mortgage account online, or request paper statements.
2. Add up the interest charged in each of the three months that fall within your MTD quarter.
3. Use that total as your finance cost for that quarter.

MTD quarters for the 2026-27 tax year run: 6 April to 5 July, 6 July to 5 October, 6 October to 5 January, and 6 January to 5 April. Match your lender statements to those date ranges. Check all MTD quarterly deadlines for 2026-27.

Worked Example: Interest-Only Mortgage

If you have an interest-only mortgage, every payment is interest. There is no capital repayment element. The full monthly payment is your finance cost. This is simpler to record.

For example: monthly payment of £550, all interest. Over a quarter of three months, your finance cost is £1,650. Record that figure in the finance costs section of your quarterly update.

What If You Have an Arrangement Fee to Spread?

Say you paid a £1,500 arrangement fee when remortgaging, and your mortgage term is five years (60 months). Strictly, you would claim £300 per year (£1,500 divided by 5). In practice, many landlords claim it all in year one. Be consistent and keep the documentation either way.

How to Report Finance Costs in Your MTD Quarterly Update

When you fill in a quarterly update for property income, HMRC's system includes a specific field for finance costs. This is where your mortgage interest figure goes.

Do not put it under repairs, management costs, or any other category. It has its own field precisely because HMRC treats it differently - applying the 20% tax credit at the end rather than a straight deduction.

If you are using bridging software like AffordableMTD, you will see property income expense categories laid out clearly. Enter the interest figure you have calculated from your lender statements into the finance costs field for each quarter.

For more detail on what goes in each section of a quarterly update, see what to include in your MTD quarterly update.

What Records You Need to Keep

HMRC expects you to be able to back up every figure you report. For mortgage interest, you should keep:

• Your annual mortgage interest certificate from your lender (most lenders issue this automatically in April)
• Monthly mortgage statements showing the interest/capital split
• Any correspondence showing arrangement fees or early repayment charges
• A note of how you calculated the quarterly figure if it is not obvious from the statements alone

HMRC can ask for these records for up to five years after the filing deadline for a given tax year - and longer if they suspect something is wrong. Keep them somewhere safe. Check how long to keep MTD records after filing.

For a broader look at what proof HMRC expects for expenses in general, see what proof HMRC needs for MTD expenses.

The Final Declaration: Where the Tax Credit Actually Appears

During your quarterly updates, you are reporting the finance costs figure. The 20% tax credit is not applied at that stage. It appears when you complete your final declaration at the end of the tax year.

At final declaration, HMRC's system (or your software) will calculate your property profit, apply the 20% credit against your tax bill based on the finance costs you have reported, and arrive at your final tax position. You do not need to calculate the credit yourself - the system does it.

What matters is that you have reported your finance costs accurately throughout the year so the final calculation is correct. See how the final declaration works step by step.

Common Mistakes DIY Landlords Make

Claiming the Full Mortgage Payment

As covered above - the most common error. Only the interest element is allowable. The capital repayment portion reduces your debt; it is not a cost against your rental income.

Not Claiming It at All

Some landlords assume that because the rules changed in 2020, mortgage interest is no longer relevant. It is still very relevant - you just get a credit rather than a full deduction. Not reporting it means you pay more tax than you should.

Using the Wrong Quarter's Figures

If you divide your annual interest by four and use the same number each quarter, you will likely be slightly wrong each time - though the annual total may wash out. It is better practice to use the actual monthly interest figures for each quarter's months.

Mixing In Other Costs

Buildings insurance, broker fees, and service charges are separate expense categories. Bundling them into the finance costs field distorts your figures and can cause problems at final declaration. Check what counts as a landlord expense in your quarterly update.

Forgetting Multiple Properties

If you have more than one mortgaged rental property, you need to record the finance costs for each one separately and report the total across all properties in the finance costs field. Do not average or estimate - pull the actual figures from each lender.

Misclassifying a Residential Loan as Commercial

The Section 24 restriction (the 20% credit rather than full deduction) applies to residential property owned by individuals. If you own commercial property or hold property in a company, different rules apply. Make sure you know which category your properties fall into.

A Quick Summary

Mortgage interest on a buy-to-let property is allowable - but it comes as a 20% tax credit applied at your final declaration, not a direct deduction from profit. During your quarterly updates, you report the interest figure (not the full mortgage payment) in the finance costs field. Keep your lender's annual interest certificate and monthly statements as evidence. Arrangement fees and early repayment charges are also allowable. Capital repayment is not. Getting this right each quarter means your final declaration will be accurate and you will not pay more tax than necessary - or face questions from HMRC about figures that do not add up.