Short-term lets are becoming an increasingly popular way to earn extra income in South Oxfordshire. From charming riverside cottages in Henley-on-Thames to stylish city apartments in Wallingford and Thame, property owners are tapping into the demand from tourists, university visitors, and weekend travellers. However, with this opportunity comes the responsibility of understanding UK tax rules, which can be complex for first-time hosts.
One question that causes particular confusion is whether mortgage interest can be deducted from Airbnb income. Understanding this can significantly affect your net profit, ensure you remain compliant with HMRC, and help you make informed decisions about running your short-let business. In this guide, we break down the rules, examples, and best practices for South Oxfordshire hosts, so you can confidently manage your Airbnb finances and maximise your returns.
In the UK, rental income from short-lets (including Airbnb) is considered property income for tax purposes. HMRC allows hosts to deduct certain expenses wholly and exclusively for the purpose of letting the property.
Mortgage payments have two components:
Interest – This portion is generally deductible as an allowable expense.
Capital repayment – This portion is not deductible, as it represents repayment of the loan principal rather than a cost of earning income.
Example:
Annual mortgage payment: £10,000
Interest portion: £6,500
Capital repayment: £3,500
Deductible expense: £6,500
Alongside mortgage interest, hosts can generally deduct:
Utilities: Gas, electricity, water (proportionate if property is partly personal use)
Insurance: Buildings and contents insurance, provided it covers short-term lets
Repairs and maintenance: Minor repairs, painting, fixing broken furniture
Cleaning and management: Professional cleaning, laundry, and management fees
Platform fees: Airbnb, Booking.com, and other listing service fees
Guest supplies: Consumables such as toiletries, coffee, and kitchen items
If you live in the property or only rent out part of it (e.g., one room), you must apportion expenses. HMRC expects you to claim only the proportion used for rental purposes.
Example:
2 of 4 bedrooms rented on Airbnb
Deductible mortgage interest: 50% of the interest portion
Deductible utilities: 50% for the rented rooms
Shared costs must be fairly calculated and documented.
The UK previously allowed a 20% tax credit on mortgage interest for residential landlords. For short-lets operated as property income, the standard mortgage interest deduction rules still apply, so hosts can deduct the interest component directly.
Keep accurate records of mortgage statements and interest portions - HMRC may request evidence in case of an audit.
Q1: Can I deduct mortgage interest if I live in the property too?
Yes, but you must apportion the expense between personal and rental use. Only the portion used for Airbnb guests is deductible.
Q2: Can I deduct the whole mortgage payment?
No - only the interest portion. Capital repayment is not deductible.
Q3: How do I prove the interest portion to HMRC?
Use your mortgage lender’s annual statements, which break down interest vs. capital. Keep these records for Self Assessment.
Q4: Can I combine mortgage interest with other expenses?
Yes - mortgage interest can be deducted alongside utilities, insurance, cleaning, platform fees, and other allowable expenses.
Q5: Does the Property Allowance affect mortgage interest deductions?
If your total rental income is under £1,000/year, the Property Allowance may apply and you don’t need to report income or claim expenses. Above £1,000, you declare income and claim deductions.
Q6: Can Pass the Keys help with mortgage interest deductions?
Yes - they can advise on allowable expenses, keep records, and ensure you claim all legitimate deductions on your Self Assessment.
Deducting mortgage interest correctly can significantly reduce tax liability for South Oxfordshire Airbnb hosts. But mistakes can trigger HMRC penalties.
Pass the Keys supports hosts by:
Maintaining detailed financial records
Advising on deductible mortgage interest and other expenses
Ensuring compliance with HMRC Self Assessment rules
Managing bookings, cleaning, and guest communication professionally
For hosts in Henley-on-Thames, Wallingford, Thame, or surrounding areas, Pass the Keys ensures your Airbnb business is profitable, tax-efficient, and fully compliant - allowing you to focus on running a successful short-let without the stress of tax complexities.