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Mortgage Arrangement Fees and Tax: What UK Landlords Can Claim

Mortgage Arrangement Fees and Tax: What UK Landlords Can Claim ! Geometric illustration of a mortgage fee and tax relief A mortgage arrangement fee on a rental property is relievable for tax, but how much relief it gives depends on the type of property and who owns it.

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Mortgage Arrangement Fees and Tax: What UK Landlords Can Claim

Geometric illustration of a mortgage fee and tax relief

A mortgage arrangement fee on a rental property is relievable for tax, but how much relief it gives depends on the type of property and who owns it. For a residential let held personally, the fee joins the other finance costs and is relieved as a 20% tax reduction. For a commercial let held personally, it is deducted in full from rental profit. For a company, it is deducted in full under the company rules. This article sets out each case, how the relief is worked out, when the fee is claimed, and how insurance premiums are treated.

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TL;DR

  • An arrangement fee is a cost of borrowing money, so it is treated like mortgage interest, not like a cost of buying the property.
  • Residential landlords who own property personally get a basic-rate (20%) tax reduction on the fee, through the Section 24 finance cost rules.
  • Commercial lets held personally can deduct the fee in full from rental profit. Limited companies deduct it in full under the loan relationships rules.
  • Insurance on a let property is allowable. Personal life, accident or sickness cover for a sole trader is not.
  • Keeping the fee invoice, the mortgage offer and the completion statement makes the claim straightforward at filing time.

Table of Contents

What a mortgage arrangement fee is

An arrangement fee is a one-off charge made by some lenders when a borrower agrees to take out a mortgage. It covers the cost of setting up the loan. Lenders may also call it a product fee, a completion fee or a booking fee. Not every lender charges one, according to MoneyHelpdesk.

The same page puts the usual range for a standard residential mortgage at £999 to £1,499, with specialist products or large loans able to exceed £2,500. Moneyfacts data reported by The Guardian in April 2025 showed the average product fee on a fixed-rate mortgage at £1,121, and the share of deals with no fee down from 41% to 36% over five years. The highest fee found in that data was £3,995.

Lenders often offer several tiers of the same product. A lower interest rate usually comes with a higher fee, and a higher rate with no fee. The Guardian gives an example of a 4.25% rate with a £1,495 fee, a 4.5% rate with a £999 fee, and a 4.75% rate with no fee. For a landlord, the tax treatment of the fee is one more input when comparing these tiers, because the relief on the fee and the relief on interest follow the same route.

Why the fee is a finance cost

Many guides say the tax treatment depends on whether the fee arises on a purchase or on a remortgage. That is not the test. The fee is a cost of obtaining a loan. It is not a cost of acquiring the property. Accountancy firms Property Tax Partners and FSL Accountancy both make this point.

HMRC guidance supports the same reading. HMRC’s Business Income Manual lists the incidental costs of obtaining finance as including legal and professional expenses for negotiating the loan, brokerage and introduction fees, Land Registry fees, search fees, valuer’s fees and commitment fees. It also covers the costs of rolling over, extending, replacing or varying an existing loan. The list is in BIM45815.

Because the fee is a finance cost, it is not added to the purchase price of the property. This matters when the property is later sold, since a finance cost is dealt with in the income tax computation each year and does not sit in the capital gains calculation. The fee is claimed against rental income, not held back for the sale.

Residential property held personally

The most common case is an individual who owns a residential let in their own name, alone or in a partnership. Here the Section 24 restriction applies. HMRC’s Property Income Manual states that the restriction covers any incidental costs of obtaining the loan, including fees and commission payments. It excludes, for example, exchange rate losses on a loan in a foreign currency. The restriction applies to individuals, trustees and personal representatives, but not to companies. See PIM2054.

In practice this means the arrangement fee is not deducted from rental income as an expense. It is added to the pool of finance costs, together with mortgage interest and any broker fee. Relief is given as a reduction in the tax bill at the basic rate, currently 20%. FSL Accountancy describes the pool and the 20% reduction, which is set out in section 272B of the Income Tax (Trading and Other Income) Act 2005.

How the restriction was phased in

The change was introduced in stages from 6 April 2017. Under HMRC’s guidance on how the relief is worked out, 75% of finance costs were deductible in 2017/18, 50% in 2018/19 and 25% in 2019/20. From 2020/21 onwards none is deductible, and the basic rate reduction has applied in full. A fee paid today is therefore relieved only through the tax reduction.

Section 24 finance cost deduction phasedown timeline

How the tax reduction is calculated

The same HMRC guidance sets out the method. The landlord takes 20% of the lowest of three amounts:

  1. The finance costs not deducted in the year, plus any finance costs brought forward from earlier years.
  2. The profits of the property business for the year.
  3. Adjusted total income above the Personal Allowance.

The result is taken off the income tax bill. The reduction cannot create a refund. Finance costs that cannot be used in a year are carried forward to following years.

A worked example

Take a landlord with one buy-to-let who pays a £1,495 arrangement fee in a tax year. The year’s mortgage interest is £6,000. The finance cost pool is £7,495. Suppose the rental profit before finance costs is £12,000, and the landlord has other income that puts total income well above the Personal Allowance.

The lowest of the three amounts is the finance costs of £7,495, since the profit of £12,000 and the income above the allowance are both higher. The tax reduction is 20% of £7,495, which is £1,499. The fee itself accounts for £299 of that reduction (20% of £1,495).

Now change one fact. If the landlord’s rental profit were only £5,000, the profit figure would be the lowest of the three. The reduction would be 20% of £5,000, which is £1,000, and the unused £2,495 of finance costs would carry forward to the next year. The figures here are illustrations built from the rules above, not a tax calculation for any real case.

The effect is different for a higher-rate or additional-rate taxpayer. Relief stays at 20%, so the fee gives less relief than a full deduction at the taxpayer’s marginal rate would. That is a feature of the Section 24 rules for all finance costs and applies equally to interest.

A worked example

Commercial and non-residential lets held personally

Section 24 targets residential property. For non-residential lets held by an individual, the fee is deducted in the normal way. HMRC’s Property Income Manual explains that incidental costs of obtaining loan finance for a property business are generally deductible when computing property business profits, provided they relate wholly and exclusively to letting property that is not residential. The rules are in sections 58 and 59 of ITTOIA 2005, applied to property businesses by sections 272 and 272ZA. See PIM2105.

For a shop, an office or other commercial let, the fee reduces rental profit directly. The tax saved is at the landlord’s own marginal rate and not the 20% reduction. Landlords with a mix of residential and commercial lets keep the two sets of finance costs apart, because the fee on a loan for a commercial property is not part of the Section 24 pool.

For sole traders who borrow for a trade rather than a letting, HMRC’s capital versus revenue toolkit says relief may be claimed for incidental costs of loan finance under sections 58 and 59 of ITTOIA 2005.

Limited companies

Section 24 does not apply to companies. A company that owns rental property deducts arrangement fees, broker fees and interest in full under the loan relationships rules in the Corporation Tax Act 2009, against profits taxed at the corporation tax rate. There is no 20% cap, according to FSL Accountancy. For companies, HMRC’s toolkit says generally accepted accounting practice for arrangement fees is followed for tax purposes, as noted in the financial costs page.

Summary of the three cases

Who borrows Type of property How the fee is relieved
Individual or partnership Residential Added to finance costs, relieved as a 20% tax reduction
Individual or partnership Commercial or non-residential Deducted in full from rental profit
Limited company Residential or commercial Deducted in full under the loan relationships rules

When the fee is claimed

Most individual landlords use the cash basis, and on that basis the fee is generally claimed in the year it is paid. On the accruals basis, a large fee that secures a multi-year facility may need to be spread across the term to match the period it relates to. The relief mechanism does not change either way. Both points come from Property Tax Partners. A fuller explanation of the two accounting methods is in the cash versus accruals guide.

When a fee is added to the loan balance rather than paid upfront, the usual approach is still to record the fee as a finance cost in the year the loan was arranged. Where there is doubt about timing, an accountant can confirm the treatment for the specific loan.

Other costs that come with the loan

The fee is rarely the only cost of arranging a mortgage. Several others fall into the same category of incidental costs of obtaining finance, as listed in BIM45815:

  • Broker fees and introduction fees.
  • Valuer’s fees and search fees.
  • Legal fees for negotiating the loan.
  • Commitment fees.
  • Costs of varying or replacing an existing loan, for example on a remortgage.

For a residential let held personally, all of these go into the Section 24 pool along with the arrangement fee. Legal fees for the purchase of the property itself are a different matter. They are part of the cost of acquiring the property and do not belong in the finance cost pool.

Bank charges on a business account are another common item that landlords and the self-employed ask about. They are covered in a separate guide on bank charges and HMRC.

Selling a mortgaged property

When a let property is sold, the mortgage is repaid from the proceeds, and any early repayment charge comes into the picture. Landlords planning an exit can read a general walk-through of selling a house with a mortgage, which covers the payoff and the net proceeds. The tax on any gain is a separate calculation from the income tax relief on the arrangement fee.

Insurance premiums and tax

Searches on mortgage fees often lead to a related question: whether insurance premiums are tax deductible. The answer depends on what the policy covers.

Insurance on let property

Premiums for policies covering damage to the fabric or contents of a let property, or loss of rents, are allowable if paid for the purposes of the property business. This includes properties held for letting but vacant for the time being. The source is HMRC’s PIM2110.

The same manual explains what happens on a claim. Recoveries for damage are normally set against the cost of repairs. Receipts for loss of rents are taxable as income of the property business.

Insurance for a trade

For sole traders, expenses connected with premises occupied for the trade are normally allowed, including insurance of the building or contents, subject to the wholly and exclusively rule. See BIM46801. Whether other premiums are deductible depends on what is insured and whether the policy was taken out for the purposes of the trade. In most cases where the premiums are allowable, the receipts from the policy are taxable as trading income, according to BIM45500.

Personal insurance

Premiums a sole trader or partner pays for life, accident or sickness cover for themselves or a partner are not allowable deductions in computing trading profits. Benefits under such policies are generally tax-free. This is set out in BIM45560. The line between personal and business spending is covered in more detail in the guide on personal versus business expenses.

Records to keep

A claim for the arrangement fee rests on three documents: the mortgage offer showing the fee, the lender’s completion statement or invoice, and the bank record of payment. Where a broker charged a fee, the broker’s invoice is added. Keeping them with the property’s income and expense records means the figure can be entered into the finance cost line of the return without a search.

With Making Tax Digital for Income Tax, landlords and sole traders above the thresholds report income and expenses digitally each quarter. Records held in one place, with each receipt matched to a date and a category, make those quarterly updates simpler. Landlords who also run a trade should keep property and trading records separate, and a separate bank account helps with this, as described in the guide on a separate bank account for a sole trader.

Our perspective

We see the same pattern with landlords every year. The arrangement fee is paid once, often months before the tax return is prepared, and the paperwork is hard to find by the time it is needed. The fee is then missed or entered in the wrong place.

The rules themselves are not complicated once the fee is identified as a finance cost. The harder part is the record keeping: a completion statement in one folder, a broker invoice in an email, interest figures on bank statements. We built Ledgery so that receipts, bank feeds and property income sit in one place, and so that the quarterly updates to HMRC are drawn from records the user already holds.

Because the user controls the filing, the figures that go to HMRC are the user’s own. Accountants can be given access to the same records, which helps where a landlord wants a second check on how a fee has been treated.

The Ledgery Team

Keeping property finance records with Ledgery

Ledgery is income tax software for UK sole traders and property owners. A receipt can be photographed, and the details are read and stored with the income and expense records. The records feed the quarterly updates sent to HMRC. Deadline reminders are included, and the first quarter is free. Plans are Simple, Grow and Pro, and the details are on the Ledgery plans page.

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FAQ

Are mortgage arrangement fees tax deductible?

Yes, but the way relief is given differs. On a residential let held personally, the fee is relieved as a 20% tax reduction through the Section 24 finance cost rules. On a commercial let held personally, it is deducted in full from rental profit. A limited company deducts it in full under the loan relationships rules.

Do I have to pay a mortgage arrangement fee?

Not always. Some lenders charge one and others do not, and the fee can be called a product, completion or booking fee. Deals with no fee often carry a higher interest rate, so the total cost over the fixed period is what matters when comparing.

What is the average mortgage arrangement fee in the UK?

MoneyHelpdesk puts the usual range for a standard residential mortgage at £999 to £1,499. Moneyfacts data reported by The Guardian in April 2025 gave an average product fee of £1,121 on fixed-rate deals. Specialist products and large loans can cost more.

Are insurance premiums tax deductible?

Insurance on a let property, covering the building, contents or loss of rent, is allowable when paid for the property business. Premiums for personal life, accident or sickness cover taken out by a sole trader are not deductible. Policy receipts are usually taxable where the premiums were deducted.

Can unused finance costs be used later?

Yes. For residential landlords, finance costs that cannot be relieved in one year because of the profit or income limits are carried forward. They are available in later years, subject to the same calculation.

Sources

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