So there I was, Saturday morning, minding my own business when my neighbour Sarah rocks up looking like she’d seen a ghost. “I need help,” she says. “I’ve just bought a rental flat and my accountant’s been banging on about Section 24. Can you claim mortgage interest on a rental property or not?”
Honestly? The answer made my head spin when I first learned about it. The government basically moved the goalposts and didn’t tell anyone properly.
The Good Old Days (Sort Of)
Back in the day, we are talking pre-2017, you could claim mortgage interest easily. There was no issue with it. You collected rent, you paid mortgage interest, and you were taxed on what was left. Job done.
My mate Tony purchased three flats in 2015. Beautiful setup he had. Rent of £2,000 a month, mortgage payments of £1,500. Tax bill? The calculation was based on the £500 difference. Sweet as a nut.
So the government had to go and ruin it all.
What Actually Happened
George Osborne decided landlords were having too much fun. So he brought in this thing called Section 24. Sounds boring, doesn’t it? Believe me, if you’re a landlord, that is anything but boring.
The change didn’t happen overnight. They phased it in over the years 2017–2020. Sneaky, really. The boiling frog analogy: by the time you notice what’s happening, it is too late.
Tony still hasn’t forgiven them. “Bunch of muppets,” he says whenever someone brings it up. Can’t say I blame him.
How It Works Now (Brace Yourself)
O.K., so can you claim mortgage interest on a rental property in 2025? Yes. But it’s complicated.
Rather than subtracting your mortgage interest from your rental income, you end up with a tax credit. Sounds the same, right? Wrong.
And here’s the kicker: the credit is only 20%. Whether you’re paying basic rate tax or higher rate tax doesn’t make a difference. Everyone gets 20%. That’s it.
Here, let me show you what this means. Imagine you are receiving £20,000 in rent and paying £15,000 in mortgage interest.
Old way: You’d have paid tax on £5,000. If you were a basic rate taxpayer, that’s £1,000 in tax.
New way: You pay tax on the full £20,000 from the start. You then receive a £3,000 credit (20% of £15,000) to take off your tax bill.
And if you’re a basic rate taxpayer, it’s pretty much the same. What if you pay a higher rate of tax? You’re stuffed.
The Higher Rate Nightmare
Here is where it gets really dirty. My cousin Paul makes £55,000 in his day job. He has one rental property that generates £18,000 a year and has £14,000 of mortgage costs.
Under the old system, he would add £4,000 to his income. No big deal.
Now he adds the full £18,000. Suddenly he’s a higher-rate taxpayer on money he’s not even pocketing. Mental, isn’t it?
Paul calculated that as a result of this change, he pays about £3,000 more in tax every year. “I would have been better off putting the money in a savings account,” he said to me last week. “Then at least I wouldn’t have tenants calling at midnight about broken boilers.”
What You Can Still Claim
Before you give up entirely, there are still deductions and credits you can get. Thank God.
Letting agent fees, repairs, insurance, and accountancy costs are all still deductible. The key is to understand the distinction between repairs and improvements.
Sarah found this out the hard way. She spent £5,000 on a kitchen extension, believing she could claim it all back. Her accountant set her straight; that’s an improvement, not a repair. Can’t touch it for tax reasons.
Fixing a broken tap? That’s a repair. Installing a gold-plated tap because you fancy it? That’s an improvement. See the difference?
The Company Route
Some smart clogs have done this by moving their properties into limited companies. Companies can still deduct mortgage interest as before. Sounds brilliant, doesn’t it?
Not so fast. There’s corporation tax to pay. Capital gains tax if you are moving existing properties. More paperwork than you can shake a stick at.
This is the course my neighbour Dave took. It cost him more in accountancy fees than he saved in tax. “Should have kept it simple,” he says now.
Real Stories From Real People
I have dozens of landlord friends who are getting this. My brother-in-law sold two of his three condos. “The numbers don’t work anymore,” he complained. You can’t argue with it, can you?
But it’s not really all doom and gloom. My mate Steve adapted. He hiked rents and concentrated on properties with lower mortgage payments. He’s fine, but he had to work a lot harder for the same results.
The landlady next door to my mum wasn’t so fortunate. She’s spent two years trying to sell. Simply can’t make the mortgage payments work with the rent she’s collecting. Proper nightmare.
Starting Out Now
Planning to be a landlord in 2025? Good luck to you but don’t take the plunge without doing your homework.
Those deposits need to be much bigger now. Those days of 10% down, sitting back, and watching the money roll in are far behind us. You’re starting at a minimum of 25 percent if you want the numbers to stack up.
Last year, my nephew was all eager to purchase a rental flat. Did the sum and found he would have to drop £80,000 to earn £200 a month profit. “I’ll just keep my ISA,” he concluded. Probably sensible.
Will Things Change?
Who knows? Politicians love tinkering with the tax system. But this lot seem pretty committed to making life difficult for landlords.
The real estate or property industry keeps moaning about it, but nobody in government seems to be listening. I wouldn’t hold my breath waiting for things to improve.
What I Really Think
Seeing what this has done to people I know, the government got what they wanted. Fewer landlords, a tougher barrier to entry, and more properties from the market for owner-occupiers.
That could be a good or bad thing, depending on whom you ask. It could be brilliant if you’re trying to buy your first home. If you’re a landlord watching your returns disappear, not so much.
The question, “Can you claim mortgage interest on a rental property?” used to have a simple answer. It now requires half an hour to get the idea across right. That’s all you need to know about where we’ve landed.
Bottom Line
You can still get some relief on mortgage interest, but it’s nothing like it used to be. If you’re thinking about rental property as an investment, factor in the reality of these rules from day one.
Don’t assume what worked for your mate’s cousin’s brother-in-law five years ago will work now. The game has changed completely.
Get proper advice from someone who knows what they’re talking about. And maybe keep some paracetamol handy; you’ll need it when you see the tax calculations.
Sarah next door? She kept her flat in the end, but only after putting down an extra £30,000 to reduce the mortgage. “It’s the only way the sums work,” she said. Smart woman.
Me? I’m sticking with my pension contributions and sleeping easy at night. Life’s complicated enough without trying to second-guess the tax man.
