A UK landlord’s plain-English guide to how HMRC treats mortgage arrangement fees, broker fees and other borrowing costs under Section 24 — and where the popular purchase-versus-remortgage rule gets it wrong.

If you’ve taken out or renewed a buy-to-let mortgage, you’ve probably paid an arrangement fee, and you’ve probably wondered whether it comes off your tax bill. A lot of the guidance on this topic still relies on an old rule of thumb: fees on a remortgage are deductible, fees on a purchase are not. That rule of thumb is out of date. What actually decides whether a fee is deductible is not when you paid it, but what kind of cost it is and how you own the property.

In this guide, we set out how the rules really work, why Section 24 quietly reduces what most individual landlords can claim, and where landlords most often trip up.

The Short Answer

Yes — a mortgage arrangement fee is a relievable cost. But how you get the relief depends on your situation. For most individual landlords letting out a residential property, the fee does not reduce your rental profit directly. Instead, it’s added to your finance costs and given relief as a 20% tax reducer under Section 24. If you own the property through a limited company, or the let is commercial rather than residential, the fee is normally deductible in full.

Why the “Purchase vs Remortgage” Rule Is a Myth

The idea that a purchase fee is somehow “capital” while a remortgage fee is “revenue” comes from mixing up two separate things: the cost of the loan and the cost of the property. The capital cost of acquiring a rental property is the purchase price, Stamp Duty Land Tax, and the legal work on the transfer — these affect your Capital Gains Tax position when you eventually sell. An arrangement fee, by contrast, is what the lender charges for advancing the money. It makes no difference whether that loan was used to buy the property in the first place or to remortgage it three years later — it’s a finance cost either way.

The Two Questions That Really Decide the Treatment

Forget purchase versus remortgage. What actually matters is:

• Is the letting residential or commercial (non-residential)?
• Do you own the property personally, or through a limited company?

Residential lets held personally — the one that catches people out

This is by far the most common setup for UK landlords, and it’s the only one of the four where the fee doesn’t come straight off your rental profit. Instead, it’s pulled into the same pool as your mortgage interest and relieved at a flat 20%, no matter what rate of tax you actually pay.

How Section 24 Changes What the Fee Is Actually Worth

Section 24 pools together all of a residential landlord’s finance costs — mortgage interest, arrangement fees, broker fees, and similar incidental borrowing costs — and gives relief as a reduction to your tax bill at the basic rate, currently 20%. This is set out in ITTOIA 2005, section 272B, which HMRC’s own internal guidance confirms applies to arrangement and broker fees in the same way as interest (see HMRC Property Income Manual PIM2105).

For a higher-rate taxpayer, this matters a lot. Before these rules were phased in, finance costs were deducted from profit and effectively relieved at 40% or 45%. Now they’re worth only 20% to that same landlord — the relief has been cut roughly in half. There’s a second, less obvious effect too: because the fee no longer reduces your reported rental profit, your total income for tax purposes looks higher than your actual cash position. That can be enough to tip you over the Child Benefit high income charge threshold or reduce your personal allowance, even though nothing has changed in your bank account.

A worked example

Say you’re a higher-rate taxpayer with one residential buy-to-let, held in your own name. During the year you remortgage and pay a £1,200 arrangement fee plus a £300 broker fee, on top of £3,600 of mortgage interest.

• Rental income for the year: £14,000
• Allowable running costs (agent fees, repairs, insurance): £2,000
• Taxable rental profit before finance costs: £12,000
• Total finance costs (interest + arrangement fee + broker fee): £5,100

Under Section 24, you’re taxed on the full £12,000 of profit at your marginal rate, then you get a separate tax reduction of 20% of the £5,100 finance-cost pool — a £1,020 credit against your tax bill. Compare that with the old system, where the £5,100 would simply have come off your profit and saved tax at 40%, worth £2,040. The fee itself hasn’t changed — what it’s worth to you has.

If You Own the Property Through a Limited Company

Section 24 only applies to individuals. A company that owns rental property deducts its arrangement fees, broker fees and mortgage interest in full, under the loan relationships rules in CTA 2009, against its profits at the corporation tax rate — there’s no 20% cap.

That’s a genuine advantage, but it’s rarely, on its own, a good reason to incorporate. Moving an existing property into a company can trigger Stamp Duty Land Tax and Capital Gains Tax on the transfer, mortgage rates for company borrowers are often less competitive, and profits taken out as dividends are taxed again personally. If you’re weighing this up, it’s worth talking it through properly — our company formation service and landlord tax advice team can model both routes side by side before you commit to anything.

What About Valuation Fees, Legal Fees and Other Closing Costs?

The same finance-versus-capital logic sorts out the other costs that come with a mortgage.

Lender’s valuation fee

If the lender needs this to approve the loan, it’s treated as a cost of obtaining finance and follows the same rules as the arrangement fee above.

Legal and broker fees

These can split. Legal work purely to put the loan and its security in place is a finance cost. Conveyancing on the actual purchase of the property is a capital cost, which doesn’t reduce rental profit but does form part of your base cost for Capital Gains Tax later.

Stamp Duty Land Tax

SDLT — including the extra surcharge on additional residential properties — is never a finance cost. It’s a capital cost of acquiring the property and sits in your CGT computation, not your rental accounts.

Does the Arrangement Fee Reduce Your Capital Gains Tax When You Sell?

No. Because the fee is a cost of borrowing rather than a cost of acquiring the property, it never enters your Capital Gains Tax base cost. It’s already been relieved through your rental accounts (or your Section 24 reducer) while you owned the property. What does count towards your CGT base cost is the purchase price, SDLT, and the acquisition legal fees. If you’re planning a sale, it’s worth getting your numbers checked in advance through our personal tax service — the annual exempt amount and current residential CGT rates are easy to get wrong if you’re doing it once every few years.

Timing: Which Tax Year Do You Claim It In?

Most individual landlords use the cash basis by default, so you claim the fee in the tax year you actually pay it. If you’re on the accruals basis, a large fee tied to a multi-year fixed deal may need spreading across the term it relates to rather than claimed all at once. Either way, for a residential let held personally, the relief still comes through as a 20% Section 24 reducer, not a straight deduction.

If you remortgage and only use part of the money for the rental business — say you release equity to spend privately — only the business proportion of the interest and the arrangement fee qualifies for relief. Keep the loan offer letter, the fee invoice and a note of how the funds were used, in case HMRC asks.

Reporting These Costs Under Making Tax Digital

The tax treatment of the fee doesn’t change under Making Tax Digital for Income Tax, but the way you record it does. Landlords with qualifying income above £50,000 are already required to keep digital records and submit quarterly updates, with the threshold dropping to £30,000 and then £20,000 in later years. That means arrangement fees, broker fees and interest need to be logged in compatible software as they happen, with the Section 24 calculation applied when you finalise the year — not reconstructed from a shoebox of paperwork in January.

Common Mistakes We See UK Landlords Make

• Treating a purchase fee as capital and a remortgage fee as revenue — the timing doesn’t matter; the type of cost does.
• Assuming the fee comes straight off rental profit — for a residential let held personally, it doesn’t; it’s a 20% reducer instead.
• Forgetting the effect on total income — Section 24 can push you over a tax band or benefit threshold even though your cash position hasn’t moved.
• Assuming a company automatically “gets full relief” makes incorporation worthwhile — it’s one factor among several, including SDLT, CGT on transfer, and dividend tax.
• Not keeping evidence for mixed-use borrowing — HMRC expects the business-use split to be documented, not assumed.

How FSL Accountancy Can Help

Getting the classification right first time — and modelling what Section 24 actually does to your income position — is exactly the kind of detail that’s easy to get wrong from generic online guidance. Whether you’re remortgaging, expanding a portfolio, or weighing up a move into a limited company, our landlord tax advice service is built around exactly this kind of decision. We also offer wider tax advisory support if you’re planning further ahead.

Get in touch with FSL Accountancy for a free initial consultation — contact our Luton office today and we’ll go through your figures with you.

Frequently Asked Questions

Is a mortgage arrangement fee tax deductible for a landlord?

For a residential let, it’s relievable but not as a straight deduction if you hold the property personally — it goes into the Section 24 pool for 20% relief. Held through a company, or on a commercial let, it’s fully deductible.

Is a mortgage broker fee deductible from rental income?

It follows the same rules as the lender’s own arrangement fee, since both count as incidental costs of obtaining the loan. There’s no separate, more generous rule for using a broker instead of going direct to the lender.

Is the arrangement fee deductible for corporation tax?

Yes. A company deducts arrangement fees, broker fees and loan interest in full under the loan relationships rules, at the corporation tax rate, with no basic-rate restriction.

Does the fee reduce my Capital Gains Tax bill when I sell?

No. It’s a borrowing cost, not an acquisition cost, so it never forms part of your CGT base cost. Only the purchase price, SDLT and acquisition legal fees count towards that.

Can I claim the whole fee in one tax year?

If you use the cash basis (the default for most individual landlords), yes — you claim it in the year you pay it. On the accruals basis, a large fee for a multi-year deal may need to be spread across the term.

What if I only use part of the mortgage for my rental business?

Only the business-use proportion of the interest and the arrangement fee qualifies for relief. Keep clear records of how the borrowing was split and used.

This article is general guidance for UK landlords and does not constitute personal tax advice. Rules can change, and your own circumstances matter — speak to FSL Accountancy before acting on any of the above.