Can I Claim Mortgage Interest as a Business Expense?
Only a proportion if you use part of your home exclusively for business - and only the interest, not capital repayments.
What HMRC Says
If you use a dedicated room for business, you can claim a proportion of mortgage interest (not capital) as a business expense.
When You Can Claim
- Proportion of mortgage interest for dedicated home office room
- 100% of mortgage interest for buy-to-let through company
When You Cannot Claim
- Capital repayments on your mortgage
- 100% of mortgage for mixed-use home
- Mortgage for personal residence portions
Understanding Mortgage Interest Expenses
Claiming mortgage interest through your limited company is one of the more nuanced home office deductions, and it comes with a significant Capital Gains Tax consideration that many directors overlook. The principle is simple: if you use part of your home exclusively for business, the company can reimburse you for a proportion of the mortgage interest. But the detail matters enormously.
First, the critical distinction: only the interest portion of your mortgage payments is ever claimable. Capital repayments are not an expense; they are building your personal equity in the property. If your monthly mortgage payment is £1,200 and £400 of that is interest, only the £400 interest element enters the calculation. For interest-only mortgages, the entire payment is interest and therefore eligible for proportioning.
The proportion is calculated the same way as other home office costs: typically by the number of rooms used exclusively for business divided by the total number of rooms, or by floor area. If your home office occupies one room out of five, you would claim 20% of your annual mortgage interest. For a mortgage charging £6,000 per year in interest, that gives you a £1,200 deduction.
Here is the critical warning: claiming mortgage interest for business use of your home can jeopardise your Capital Gains Tax private residence relief when you sell. Normally, your main home is completely exempt from CGT. However, if part of your home is used exclusively for business, HMRC may argue that portion does not qualify for private residence relief. The key word is exclusively. If your office doubles as a guest bedroom or family room, HMRC is less likely to challenge your CGT exemption.
Many accountants advise directors to use the flat rate (£6 per week) instead of claiming actual costs including mortgage interest, specifically to avoid the CGT complication. The flat rate covers all household expenses and does not create the exclusive use argument. However, for directors with large mortgages and dedicated office spaces, the proportional claim may be significantly more valuable, and the CGT risk may be manageable if you keep the proportions reasonable.
VAT is not relevant here since mortgage interest does not carry VAT. The deduction reduces your company's Corporation Tax liability at 19-25%.
Real-World Examples
Standard home office interest claim
Ben has a repayment mortgage with annual interest of £8,000. His dedicated home office is one of six rooms. His company claims 16.7% of the interest, which is £1,336 per year. This reduces his company's CT bill by £267-£334 depending on the rate.
Interest-only mortgage
Claire has an interest-only mortgage with monthly payments of £900 (all interest). Using 1 room out of 5 as a dedicated office, her company claims 20% of the £10,800 annual interest, giving a £2,160 deduction. Her accountant has flagged the CGT risk.
Choosing the flat rate instead
After discussing with his accountant, Paul decides to use the £6 per week flat rate (£312/year) rather than claiming mortgage interest of £950. Although the mortgage claim is higher, the flat rate avoids any risk to his CGT private residence relief when he eventually sells the house.
Common Mistakes to Avoid
- Claiming mortgage capital repayments as well as interest - only the interest element is an allowable expense.
- Not considering the Capital Gains Tax implications of claiming exclusive business use of part of your home, which can reduce your CGT private residence relief on sale.
- Claiming an unreasonably high proportion of the home for business use, such as 50% when only a small room is used as an office.
- Mixing up the rules for company-owned property and personal property used for business - these have fundamentally different tax treatments.
Frequently Asked Questions
Will claiming mortgage interest affect my CGT exemption when I sell my home?
Potentially, yes. If you claim that part of your home is used exclusively for business, HMRC could argue that portion does not qualify for principal private residence relief on sale. The risk increases with larger proportions and longer periods of exclusive business use. Discuss this with your accountant before making claims.
Should I claim actual mortgage interest or use the flat rate?
It depends on your circumstances. The flat rate (£6/week, £312/year) is simpler and avoids CGT complications. The actual cost method is better if your mortgage interest proportion exceeds £312 and you are comfortable with the CGT considerations. Run the numbers both ways.
Can my company pay my mortgage directly?
Your company should not pay your personal mortgage directly. This would likely be treated as a director's loan or salary payment with tax consequences. Instead, the company reimburses you for the business proportion of mortgage interest as a use-of-home expense.
What if I remortgage - does that change anything?
Remortgaging can change your interest amount, which affects the claimable proportion. If you remortgage and increase the borrowing for personal reasons (home improvements, debt consolidation), only the interest on the original business-use proportion of the original mortgage amount remains claimable.
Source: HMRC Business Income Manual BIM47820 - Use of home, and HMRC Capital Gains Manual CG64700 - Private residence relief: business use
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