Section 24 stops an individual landlord deducting mortgage interest from rental income. Since the 2020-21 tax year, you work out your rental profit with no deduction for finance costs, then reduce your tax bill by a basic rate tax credit (HMRC calls it a tax reduction) of 20% of those costs. A basic-rate taxpayer usually ends up where they started. A higher-rate or additional-rate taxpayer pays more, and some landlords who thought they were basic-rate find the higher profit figure pushes them into a higher tax band.
This article explains the mechanics in HMRC's own terms, works the numbers for 2026/27, and covers why limited companies are treated differently. It is written for the individual landlord and for the accountant or small firm preparing the return.
What is section 24, and where does it come from?
Section 24 of the Finance Act 2015 (strictly, the Finance (No. 2) Act 2015) inserted section 272A into the Income Tax (Trading and Other Income) Act 2005. It restricts the deduction a landlord can take for the costs of a 'dwelling-related loan' when working out the profits of a property business.
There is no 'section 24 deduction' to claim. The point of the rule is that the deduction has gone. For 2020-21 or any later tax year, the Act says no deduction is allowed for the costs of a dwelling-related loan. What remains is tax relief on mortgage interest given as a credit against the tax you owe.
Why section 24 was introduced
The measure was announced at Summer Budget 2015. HMRC's policy paper says the aim was to make the tax system fairer by limiting the relief landlords get on residential property finance costs to the basic rate of tax, so that landlords with higher incomes no longer receive the most generous treatment. The then Chancellor, George Osborne, argued that landlords had a tax advantage that ordinary homebuyers did not. It was part of a wider push on housing, which also included the 3% stamp duty surcharge on second homes.
Legal challenges and petitions did not stop it. Both Conservative and Labour governments have supported it, and there is no announced plan to repeal it as of June 2026. If you are planning on the basis that section 24 will be reversed, that is a hope, not a position.
How does section 24 work? The phasing
The restriction was phased in over four tax years. HMRC's guidance sets out the split:
| Tax year | Share of finance costs deductible from rental income | Share given as basic rate tax credit |
|---|---|---|
| 2017-18 | 75% | 25% |
| 2018-19 | 50% | 50% |
| 2019-20 | 25% | 75% |
| 2020-21 onwards | 0% | 100% |
Before this tax change, landlords could deduct mortgage interest from rental income and so reduce their taxable profit. Now you pay tax on the profit worked out without that deduction, and the relief comes back at the basic rate of income tax afterwards.
HMRC's policy paper said it expected about 1 in 5 individual landlords to receive less relief as a result. For many landlords the rule changes nothing, which is worth remembering before anyone restructures a portfolio.
How does section 24 affect UK landlords? Who and what is caught
Who. The restriction applies to individuals who receive rental income from residential properties in the UK or overseas and who incur finance costs. It also reaches landlords who hold residential property through a partnership, and the Act applies the same phasing to interest on loans taken out to invest in a property partnership (section 399A of the Income Tax Act 2007). Trustees and beneficiaries of trusts can be within the rule too, so a trust or mixed-ownership situation needs checking against HMRC's Property Manual rather than assuming the simple case.
Scotland, Wales and Northern Ireland are covered. Scottish taxpayers apply Scottish rates and bands to their rental profit, but the finance cost restriction and the 20% credit work the same way.
Are you affected by section 24? In short, you are if you own residential rental properties in your own name, or as a partner or in a trust, and you borrow against them. You are not caught if the property is held by a limited company, or if it is commercial property. You will not pay more tax if your income stays below the higher-rate threshold, but you are still within the rule and must report your figures its way.
Which finance costs are restricted
HMRC's definition of finance costs includes:
- mortgage interest
- interest on loans to buy furnishings
- fees incurred when taking out or repaying mortgages or loans
The Act's definition of 'costs' of a dwelling-related loan covers interest, anything economically equivalent to interest, and the incidental costs of obtaining the finance. Capital repayments of a mortgage or loan never attracted relief and still do not. Where a loan relates to a property that is not wholly residential, such as a flat with a shop below, the costs are apportioned on a 'just and reasonable' basis and only the residential share is restricted.
What you can still deduct. Everything else on the expenses side still comes off rental income as before: letting agent and management fees, insurance, and maintenance and repairs that return the property to its original condition. Section 24 targets the financing of the property, not the running of it. So the answer to 'can I still deduct mortgage interest?' is no, but you can still deduct mortgage-free running costs, and you can still claim the 20% credit.
How the 20% tax credit is calculated
The credit is not simply 20% of your mortgage interest in every case. HMRC says it is the basic rate (currently 20%) of the lowest of three figures:
- Finance costs not deducted from rental income in the year, plus any finance costs brought forward from earlier years.
- Property business profits for the year, after using any brought forward losses.
- Adjusted total income, meaning your income after losses and reliefs, excluding savings and dividend income, that exceeds your personal allowance.
The credit cannot be used to create a refund. And because it comes off the tax you owe, rather than off your income, it does not lower the profit figure that the rest of your tax calculation uses. That second point is the source of most of the pain.
A worked example of section 24 tax for 2026/27
For 2026/27 the personal allowance is £12,570 and the higher-rate threshold is £50,270. Both are frozen.
Take one property, the same for three different landlords:
- Rent: £18,000
- Mortgage interest: £6,000
- Other allowable expenses: £2,000
Before section 24, rental profit would have been £10,000 (£18,000 − £6,000 − £2,000). Under section 24, rental profit is £16,000 (£18,000 − £2,000), and the credit is £1,200 (20% of £6,000). The credit is the lowest of the three figures in each case below, so it is not capped. These examples use English income tax rates, assume the only other income is a salary, and ignore National Insurance.
Landlord A: salary £30,000. Total income is £46,000, under £50,270. Tax on the rental profit is £16,000 × 20% = £3,200. Less the £1,200 credit, the net is £2,000. Under the old rules it was £10,000 × 20% = £2,000. Nothing has changed. HMRC's first case study shows the same result: a landlord whose total income, without a deduction for finance costs, does not exceed the higher-rate threshold has no additional tax to pay.
Landlord B: salary £60,000. Every pound of rental profit is taxed at 40%. Tax is £16,000 × 40% = £6,400, less £1,200, so £5,200. Under the old rules it was £10,000 × 40% = £4,000. The extra cost is £1,200, which is the 20-percentage-point gap between the landlord's marginal rate and the credit, applied to £6,000 of interest. A higher-rate landlord pays an extra £200 for every £1,000 of mortgage interest.
Landlord C: salary £38,000. Under the old rules total income was £48,000, entirely in the basic-rate band, and tax on the rental profit was £10,000 × 20% = £2,000. Under section 24, total income is £54,000, which is £3,730 above £50,270.
- £12,270 of rental profit at 20% = £2,454
- £3,730 of rental profit at 40% = £1,492
- Tax before the credit = £3,946
- Less the £1,200 credit = £2,746
The extra cost is £746, which is £3,730 × 20%. This landlord paid basic-rate tax before and now pays tax at a higher rate on part of the profit, even though their cash position has not changed.
HMRC's own case studies make the same point with 2016-17 rates. Its second example shows a landlord with £35,000 of self-employment income and £18,000 of rent who becomes a higher rate taxpayer because of the change, and notes that the higher total income may bring the High Income Child Benefit Charge into play.
When the credit is capped: carrying forward unused finance costs
If the credit is limited by property profits or by adjusted total income, the unused part is not lost. HMRC says the difference between that figure and your finance costs is carried forward to calculate the credit in later years.
HMRC's fourth case study shows how this works. A landlord has a salary of £36,000, rent of £20,000, mortgage interest of £15,000 and £7,000 of other expenses after repairs during a void period:
| Year 1 (2020-21) | Year 2 (2021-22) | |
|---|---|---|
| Property profit | £13,000 | £22,000 |
| Finance costs for the year | £15,000 | £15,000 |
| Brought forward | nil | £2,000 |
| Finance costs available | £15,000 | £17,000 |
| Lowest of the three limits | £13,000 (property profit) | £17,000 (finance costs) |
| Tax credit at 20% | £2,600 | £3,400 |
In year one the property profit is lower than the finance costs, so the credit is capped at 20% of £13,000. The remaining £2,000 is carried forward and added to year two's finance costs, where the full £17,000 is used.
Carry-forward matters most where a property has a poor year: a long void, heavy repairs, or a rent reduction. Keep a running record of the brought-forward figure so it is right on the next return.
The impact of section 24 on tax bands
Because the interest is no longer deducted, your taxable rental profit is higher than your cash profit. That figure is added to your other income. Landlords sometimes call it 'phantom income'. The consequences go beyond the headline rate:
- Part of your income may move into the higher tax band at 40%, as Landlord C found above.
- The personal allowance tapers away for income above £100,000, at £1 lost for every £2 above that level.
- The High Income Child Benefit Charge may apply.
- Student loan repayment calculations may be affected.
The credit does not undo any of this, because it is applied to the tax bill and not to the income figures these thresholds look at. This is why a basic-rate landlord can still see higher tax liabilities after the change.
Why limited companies are treated differently
Section 24 applies to individuals, including individuals in partnerships. A limited company that owns rental properties is outside the restriction. Companies can still deduct mortgage interest as a business expense when working out their profit, and they pay corporation tax on what is left. This is the main reason many landlords have looked at companies.
The corporation tax rates quoted for companies run from 19% to 25%, compared with income tax of 40% or 45% for higher and additional-rate individuals. Hamptons data puts the number of companies holding buy-to-let property at over 401,000 by the end of 2024, up 332% since relief began to be withdrawn in 2016.
A company is not automatically the better answer. Moving existing property into a company has costs, and they arrive up front:
- Capital gains tax. A transfer from you to a company, even one you own entirely, is treated as a sale at market value.
- Stamp duty land tax. The company pays SDLT on the transfer.
- Lender consent. Your name is on the mortgage, so the lender must agree to the change. Many lenders will not permit a transfer to a company, and a buy-to-let mortgage for a company is often priced differently and carries arrangement fees.
- Getting the money out. Profit taken as dividends is taxed again in your hands, with dividend tax rates quoted at 10.75% and 35.75%.
Incorporation tends to suit landlords with several properties who intend to keep the profits in the company to buy more. It is usually the wrong move for someone with one or two properties who needs the rent to live on, or who may sell within a few years. That is a decision to model with actual numbers, not to take from a rule of thumb.
Holiday lets are no longer outside the rule
Older landlord tax guides often say furnished holiday lets are exempt. That was true until the furnished holiday lettings regime was abolished from 6 April 2025. Holiday let owners now face the same restriction and receive only the 20% basic-rate credit on finance costs.
Tax planning without a company
Can you reduce the impact of section 24 without setting up a company? Often, yes:
- Ownership between spouses or civil partners. If one of you pays tax at the basic rate, moving some or all of the beneficial ownership to them means more of the profit is taxed at 20%. Transfers between spouses and civil partners are usually made on a no gain, no loss basis for capital gains tax. If you do not hold the property 50/50, you may need a declaration of beneficial interests to split the income differently, and it must match who actually owns what.
- Pension contributions. Contributions reduce your adjusted net income and can bring a borderline landlord back under £50,270.
- Lower borrowing. Paying down a mortgage, or remortgaging at a lower rate, reduces the finance costs that feed the tax charge. Check arrangement fees and early repayment charges first.
- Claim every allowable expense. Section 24 does not touch running costs, so letting agent fees, repairs, insurance and accountancy fees should all be claimed in the right year with records to support them.
Transfers of income to minor children do not work, because income from assets given to a minor child is still treated as the parent's. And mortgage interest cannot be re-labelled as a repair to claim it as a deduction.
What to check on the return
For individuals, finance costs go in their own box on the self-assessment property pages, and HMRC expects the majority of landlords to complete just that one box. The calculation of the credit is automated for people filing online. For accountants and landlords preparing returns, these are the checks that matter:
- Finance costs are in the finance cost box, not in expenses. If you report through Making Tax Digital, the same applies to each quarterly update. Our guide to Making Tax Digital for landlords and the quarterly updates covers the heading structure.
- Mixed-use property is apportioned. Only the residential share of the loan costs is restricted.
- Brought-forward finance costs are carried in. The figure from last year's return must feed into this year's calculation.
- The other income is right. The band effect depends on your salary, pension, self-employment profits, dividends and savings interest, not just the rental figures.
- Jointly owned property is split correctly. Each owner's share of rent, expenses and finance costs follows their own entitlement.
- Holiday lets are treated under the current rules. Properties previously treated as furnished holiday lettings need reviewing from 6 April 2025.
Frequently Asked Questions
Do landlords get any tax relief on mortgage interest?
Yes, but as a 20% tax credit, not as a deduction from rental income. For basic-rate taxpayers this usually matches the old outcome. For higher-rate and additional-rate taxpayers it is worth less.
Can I still claim mortgage interest, or still deduct mortgage interest from rental income?
You can claim the credit, but you cannot deduct mortgage interest from rental income if you own the property as an individual. Landlords who own through a limited company can, because companies can still deduct mortgage interest as a business expense.
When did section 24 come into full effect?
It was phased in from 6 April 2017 and has applied in full from the 2020-21 tax year.
Will section 24 ever be reversed?
There is no announced plan to repeal it as of June 2026, and it has been supported by successive governments. Plan on the basis that it stays.
What does section 24 mean for someone buying a rental property with a mortgage?
Borrowing costs more after tax if you are a higher-rate taxpayer: the example above shows an extra £200 of tax for every £1,000 of mortgage interest. A basic-rate buyer whose total income stays under the higher-rate threshold is unaffected. Work out your own position, including the band effect, before you commit, and weigh any structure against the capital gains tax and SDLT costs described above.
What happens if my rental profit is lower than my finance costs?
The credit is limited to 20% of the lowest of finance costs, property profits and adjusted total income. The unused amount is carried forward to later years, so it is not lost.
Deplexify prepares accounts and tax for UK landlords, including the self-assessment property figures described above. The details are on our UK property page.
Sources
- Tax relief for residential landlords: how it's worked out - GOV.UK — gov.uk, read 2026-10-18
- Restricting finance cost relief for individual landlords - GOV.UK — gov.uk, read 2026-10-18
- Finance (No. 2) Act 2015 — legislation.gov.uk, read 2026-10-18
- Restriction of tax relief on mortgage interest - section 24 - UK Landlord Tax — uklandlordtax.co.uk, read 2026-10-18
- What is a section 24? | Landlord Tax Changes | AXA UK — axa.co.uk, read 2026-10-18
- Section 24 and Mortgage Interest: Strategies Landlords Can Still Use Leg : — fhpaccounting.co.uk, read 2026-10-18
- A Guide to Section 24 Tax Change For Buy-to-Let Investors — landlordstudio.com, read 2026-10-18
- Mortgage Interest Restriction (Section 24) | Tax for Landlords | #GoFile Knowledgebase — gofile.co.uk, read 2026-10-18
- Section 24 Landlord Tax Relief Explained (2026/27 Guide) — thetaxlead.co.uk, read 2026-10-18