Buying a home as a self-employed person is exciting, but it also immediately raises a practical question: how do you record a mortgage loan in your accounts?
The good news is that it’s less complicated than it sounds. Below, you’ll find a step-by-step guide on how it works, what you can and cannot deduct, and where self-employed people often go wrong.
Do you always have to include a mortgage in your accounts?
That depends on what the property is used for.
- Private residence
- Do you use the property solely for private purposes? Then the mortgage does not appear in your sole trader’s accounts. The repayments are a private expense.
- Property with a business section
- Do you use part of the property as an office, studio or practice space? Then you may claim part of the costs as business expenses. In that case, the mortgage does feature in your accounts.
- Entirely commercial property
- Are you buying a property that you use exclusively for business purposes? Then the business percentage is 100%.
Should you buy a property for private or business use?
With a sole trader business, you can technically do purchase a property for business purposes, but in reality this is almost never worthwhile. This is because the cost is equal to the annual depreciation.
Depreciation actually means a ‘reduction in value’. In reality, properties only increase in value. You gain an advantage now, but will otherwise pay tax later because your property has increased in value.
For the self-employed, the best choice is usually:
➡️ To purchase the property privately.
➡️ Only claim the business-related interest on the loan.
What can you claim as a business expense with a mortgage loan?
It is important to know that you cannot claim the loan itself. Nor do you record ‘the monthly repayment’ as an expense.
So what can you claim?
1. The interest on the loan
Only the interest paid is tax-deductible. You record this interest as a business expense; this can be fully or partially deductible depending on the business use. So not the repayment itself.
2. Deductible costs related to the loan
You can also include costs associated with the loan in your accounts; these can be claimed at the same percentage as the interest.
Some examples:
- application fees
- valuation fees
- notary fees for the mortgage
- deed costs linked to the loan
3. Optional: Depreciation of the business portion
You may also be able to depreciate the property itself. You spread the purchase value over several years (usually 20 to 33 years), and that depreciation amount is deductible in proportion to the business use.
This is only possible if you purchased the property (partly) for business purposes, but this is generally not advisable!
How do you determine the business percentage?
You may only claim the portion corresponding to the actual business use.
Many self-employed people use a simple method:
- office area / total area of the property
Example: a 12 m² office in a 120 m² property → 10%.
You use this percentage for:
- interest deduction
- depreciation
- costs associated with the loan
⚠️ Please note: this percentage must remain realistic. Most professions cannot claim their bedroom.
How do you practically record the loan in your accounts?
Create an expense in your accounts. As a document, you can upload the depreciation table you received with your property. This shows how much interest you pay each year. In the early years of your loan, this is higher than in later years.
Multiply that amount by the business percentage and record it as a deductible expense. The expense category under which you can record this is ‘miscellaneous financial and bank charges’.
Step 2: Record the additional costs
Costs such as application fees or valuation fees should also be recorded in proportion to business use. You can, for example, record these under “Home maintenance, partly related to your business”, or create a new sub-category under “Home costs” called “Miscellaneous home costs”.
Step 3: DO NOT record the repayment itself
The capital repayment (the “principal” of your monthly repayment) is not an expense and does not appear in your profit and loss account. It is simply a private expenditure.
Common mistakes made by the self-employed
- thinking that the entire repayment is deductible
- not using a realistic business percentage
- recording costs of the purchase deed separately when they should be depreciated
- assuming that the property is “built for business purposes”, which is not possible for sole traders
- forgetting that a private loan can never be claimed as 100% business-related
What happens if you sell the property later?
The business portion is treated as a “business asset”.
That portion may be subject to capital gains tax when you sell.
The higher your business percentage, the greater that effect.
That is why many self-employed people deliberately opt for a limited but justifiable business percentage.
FAQ on mortgage loans in your accounts
Do you need to include a mortgage loan in your accounts as a self-employed person?
Only if you use part of the property for business purposes. The private portion remains private.
What can you deduct from a mortgage loan?
The interest, depreciation on the business portion, and costs such as application and valuation fees.
Is the full monthly repayment deductible?
No. Only the interest is deductible. The capital repayment is not.
How do you calculate the business percentage?
By dividing the business area by the total floor area of the property.
Do you have to buy a property for business purposes through your sole proprietorship?
No. It is better to keep the property private; you only claim the business portion as an expense.
