Quick answer
MTD doesn’t change the tax treatment. Interest on residential property mortgages isn’t deducted like other expenses. You get relief as a basic-rate tax credit, and the costs are reported separately as residential finance costs. Mortgage interest doesn’t reduce your qualifying income for the MTD threshold either.
Key facts
Residential finance costs get relief as a 20% tax credit
They’re recorded separately, not as an ordinary expense
They don’t reduce qualifying income, which is gross rent
Capital repayments aren’t allowable at all
What counts as finance costs
Mortgage interest on a let residential property
Interest on loans to buy furnishings
Fees for arranging or ending a mortgage or loan
How the relief works
Instead of deducting finance costs from your rental income, you get a tax credit worth 20% of them. Higher and additional rate taxpayers therefore get less relief than the interest they pay.
Recording it under MTD
Keep digital records of the interest you pay. Your software reports residential finance costs separately from your other property expenses, and the tax credit is worked out in your final declaration.
Common questions
Does mortgage interest bring me under the threshold?
No. The MTD threshold uses gross rent before any expenses or finance costs.