How does the finance cost restriction on mortgage interest work?

Rental profit is now calculated on gross rent less non-finance expenses only, which inflates the taxable profit figure compared with the old rules, and can push a landlord into a higher tax band or reduce entitlement to the personal allowance through the income tapering above £100,000, even though actual cash profit after the mortgage is much lower.

The 20% tax reduction is capped at 20% of the lower of the finance costs, the property business profit for the year, and total income exceeding the personal allowance, so highly geared landlords with thin profits may not get full relief for unused finance costs, though any excess carries forward.

This restriction only applies to individuals, trustees and partnerships; a company holding UK property deducts loan interest in full against rental profit before calculating corporation tax, subject to the separate corporate interest restriction rules which only bite on very large interest amounts.

This difference is a major driver behind non-resident landlords considering a company structure for heavily mortgaged portfolios, though it needs weighing against exit tax and extraction costs discussed elsewhere.

Our fixed monthly packages for a UK limited company start at £89 plus VAT and run to £169 and £289 plus VAT as bookkeeping, VAT, payroll and reporting are added. One-off filings are sold at fixed prices, and the Companies House fees we pay for you are charged at cost with no VAT added. Overseas owners are quoted on exactly the same published prices as UK-resident clients.

Rates, thresholds and deadlines here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.