Deduction of interest against property income ― income tax rules

Produced by Tolley in association with of Crane Dale Tax

Owner-Managed Businesses

Guidance

This guidance note sets out the restriction on the deduction of interest again rental income for individuals with a residential property letting businesses.

Interest costs for income tax purposes

An area that commonly raises questions regarding its deductibility against rental income is interest (often the single biggest cost for a landlord).

The rules are different for income tax and for corporation tax. For corporation tax rules, see the Deduction of interest against property income ― corporation tax rules guidance note.

The deduction for finance costs relating to residential property is restricted for income tax purposes, see more details below. These restrictions do not apply to non-residential property.

Prior to the abolition of the furnished holiday lets (FHL) tax regime from 6 April 2025, FHL were, for this purpose, specifically excluded from the restriction and treatment for interest costs remained aligned with commercial property. From 6 April 2025 FHL treatment is the same as for ordinary residential lets, see the Furnished holiday lets guidance note.

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Rob Durrant-Walker

Tax Director at Crane Dale Tax , Corporate Tax, OMB, Personal Tax

Rob is a cross-tax advisor with a particular focus on property tax planning, and business structure planning for OMB’s. He provides tax advice to other accounting firms, balancing commerciality, ethics, and understanding complexity. His 30+ years of experience start at the Inland Revenue in Hull. After completing his ATT and CTA by 1999 with PKF, he subsequently worked at KPMG and UHY prior to managing the business tax team as a director at Garbutt + Elliott. Rob is now Tax Director at the independent tax consultancy, Crane Dale Tax. He is a regular author for Taxation magazine with many articles and Readers Forum contributions since 2005, and he contributes as a virtual member to the CIOT Property Tax technical committee. Rob works remotely from Vancouver in Canada.

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