Your Complete Guide...
Let's take a detailed look at how the Mortgage Interest Tax Deduction for a UK main residence affects you.
Everything you need to know !
Can I Still Claim Mortgage Interest as a Tax Deduction on My UK Home?
If you're a UK homeowner, you might be wondering if you can get any tax relief on your mortgage interest. The short answer is probably not – at least not for your main home.
The rules have changed dramatically over the years, leaving many homeowners confused about what they can and can't claim.
Let's clear things up and look at what's possible in 2025 and beyond for property owners seeking tax relief on their primary residences.
What Exactly is Mortgage Interest Tax Deduction for UK Main Residences?
Mortgage interest tax deduction refers to claiming tax relief on the interest you pay for your home loan. This can have significant implications for your income tax.
But here’s the key fact: for most UK homeowners, mortgage interest on main residences is no longer tax-deductible. This tax relief was completely phased out by April 2000, meaning if you bought your home after this date, you’ve never been eligible for this benefit.
Before 2000, the UK had a system called MIRAS (Mortgage Interest Relief At Source) that gave homeowners tax relief on mortgages up to £30,000.
The government gradually reduced the rates from 15% to 10% before eliminating it entirely. Today, the rules only allow deductions in very specific circumstances related to business use.
Eligibility and Restrictions for Claiming Mortgage Interest Tax Relief
Mortgage interest tax relief is a valuable benefit for landlords who receive rental income from residential properties in the UK. To qualify, you must be a landlord letting out your property to tenants. This relief specifically applies to the interest paid on your mortgage, not the capital repayments.
However, there are important restrictions to be aware of. Firstly, if the mortgage is for your main residence, you won’t be eligible for this tax relief.
The relief is strictly for mortgages taken out with the purpose of renting out the property. This means if you took out a mortgage to buy your main home, the interest paid on that mortgage does not qualify for tax relief.
Additionally, this relief is only available to individuals, not limited companies. If you’re considering incorporating your rental business, it’s crucial to seek professional advice to understand how this decision might impact your tax position.
Incorporation can have significant tax implications, and professional guidance can help you navigate these complexities effectively.
By understanding these eligibility criteria and restrictions, you can better manage your rental business and optimise your tax situation.
When Can You Still Claim Tax Relief on Your Main Home Mortgage?
While general mortgage interest relief is gone, there are a few exceptions. If you use part of your home exclusively for business purposes, such as running a property business, you might be able to claim a proportion of your mortgage interest as a business expense.
For example, if you’re self-employed and one room is used solely as your office, you could potentially claim tax relief on that percentage of your interest.
Running a furnished holiday letting business from part of your property might also qualify you for some tax relief.
Additionally, converting part of your home exclusively for business rental can create tax deduction opportunities, but strict rules apply to these arrangements.
How Do the Current Rules Differ from the Old System?
The change has been significant. Under the old MIRAS system, millions of UK homeowners received tax relief simply for having a mortgage on their main residence. The government phased it out to simplify the tax system and reduce what they saw as an unnecessary subsidy.
Meanwhile, buy-to-let property owners also saw changes between 2017-2020, with mortgage interest relief being replaced by a 20% tax credit. These changes reflect a shift in government policy away from subsidising property ownership through the tax system.
Are There Any Special Exceptions I Should Know About?
A few special cases exist for homeowners. While mortgage interest relief is largely gone, it's important to note that interest paid on residential mortgages is not tax-deductible.
The Rent-a-Room scheme allows you to earn up to £7,500 tax-free by renting out a furnished room in your home without affecting its status as your main residence. If you’ve adapted your property for a dependent relative, it generally maintains its residential status for tax purposes.
Heritage properties sometimes qualify for special tax considerations, though these are quite specific and apply to a small percentage of UK homeowners. When I helped a client with a Grade II listed building, we discovered several tax advantages that offset the higher maintenance costs.
What Other Tax Benefits Still Exist for UK Homeowners?
While mortgage interest relief is largely gone, other valuable tax advantages remain for property owners.
Private Residence Relief means you don’t pay Capital Gains Tax when selling your main home, potentially saving thousands of pounds when you move.
Private Residence Relief can significantly reduce your tax liability when selling your main home. First-time buyers also get reduced rates on Stamp Duty Land Tax.
If you work from home, you might claim some household expenses as business costs. These benefits can significantly impact your overall tax position, even without mortgage interest relief.
How Can I Make the Most of My Property Tax Situation?
Always keep detailed records if you use part of your home for business.
Review your property arrangements regularly to ensure you pay tax correctly and take advantage of any available reliefs – especially if you own multiple properties. Consider how joint ownership affects your tax position if you’re married or in a civil partnership.
Most importantly, get professional advice for your specific circumstances. UK tax rules can be complex and change frequently.
Pie, the UK’s first personal tax app for working individuals, helps simplify these complexities with integrated bookkeeping, real-time tax figures, and expert advice.
Conclusion
It’s unlikely we’ll see a return to the old system of mortgage interest relief for main residences. While you might not get tax relief on your mortgage interest payments, owning your home still offers financial advantages.
Tax policy tends to evolve gradually, but the trend has been away from property-related tax breaks for primary homes. Your best strategy is to work within the current rules and take advantage of the tax benefits that do exist.
Remember that while you might not get tax relief on your mortgage interest, owning your home still offers financial advantages through potential property value increases and freedom from rental costs.
These long-term benefits often outweigh the lost tax advantages for most homeowners.
Need help sorting out your property tax situation? Consider trying Pie to simplify your tax affairs and ensure you’re claiming everything you’re entitled to.
