Under Making Tax Digital for Income Tax, mortgage interest on a residential let is still restricted by Section 24: you do not deduct it from your rental profit, and instead get relief at the basic rate of 20% in your tax calculation. What MTD changes is the reporting. The interest now goes into your digital records and your quarterly updates as its own category, residential finance costs, and the 20% relief is worked out at the end of the year. For how the restriction itself works, see Section 24 explained.
A category of its own
HMRC's digital record rules make a point of this. Even landlords who use the simpler categories allowed when UK property turnover is under £90,000 must record whether an expense is a restricted finance cost. Everything else can be lumped together in that case; residential finance costs cannot, because they are relieved differently.
Residential finance costs include mortgage interest, interest on loans to buy furnishings for the let, and fees for arranging or repaying the finance. If a loan covers both residential and commercial property, only the residential share is restricted, so apportion it on a reasonable basis.
Interest, not the whole payment
A repayment mortgage payment is part interest and part capital. Only the interest is a finance cost. HMRC lets you either record just the interest, or record the full payment and adjust before you finalise your tax position. Recording the full payment through a bank feed and forgetting to adjust is one of the easiest ways to overstate your costs.
What the quarterly update shows
Your quarterly update carries totals for each category, including residential finance costs, for the tax year so far. It is not a tax calculation. The estimate you see after sending an update does take the finance costs into account, but the relief is only finalised when you submit your tax return, after any year-end adjustments.
Jointly owned property
Record only your share of the interest, in line with your share of the income. Married couples and civil partners are normally treated as 50/50 unless they have declared unequal shares on Form 17. See MTD for jointly owned property.
Holiday lets and commercial property
Since the furnished holiday lettings regime ended on 6 April 2025, holiday lets are restricted in the same way as other residential lets. Commercial property is outside Section 24, so its finance costs are deducted in full, and they go in a separate category from residential finance costs. See holiday lets and MTD.
At the year end
- Make sure the finance costs total is interest only, and only your share.
- If the 20% reduction is limited in a year, for example because your property profit is low, HMRC's rules let the unrelieved finance costs be carried forward to later years.
- Submit your tax return by 31 January; the basic-rate relief is part of the calculation you confirm.
How VoxaMTD handles it
VoxaMTD keeps residential finance costs in their own category, applies your ownership share for jointly owned property, and sends them in your UK property quarterly update. Its Section 24 calculator shows the effect of the basic-rate relief on your tax, and the calculator and filing are both free. Try the Section 24 calculator or start free.
This guide is general information based on HMRC's published guidance as at 27 September 2026. It is not tax advice. Check GOV.UK or take advice for your own circumstances.