Section 24 has fundamentally changed how UK landlords claim mortgage interest relief, but the impact isn't felt equally. Higher-rate taxpayers face the biggest hit, with mortgage interest relief restricted to just 20% instead of their marginal tax rate of 40% or 45%.

If you're a landlord earning over £50,270 in the 2025/26 tax year, understanding Section 24's impact on your portfolio is crucial for tax planning and future investment decisions.

Understanding Section 24 for Higher-Rate Taxpayers

Section 24 restricts individual landlords to a basic-rate (20%) tax credit on their finance costs, primarily mortgage interest. This creates a significant disadvantage for higher and additional-rate taxpayers, who previously claimed relief at their marginal rate of 40% or 45%.

The rules are fully phased in, meaning all finance costs are now disallowed as an expense. Instead, landlords receive a tax reduction calculated as 20% of their finance costs. This increases your taxable income, which can push you into a higher tax band or increase the amount of income taxed at 40% or 45%.

Real Impact and Hidden Tax Traps

Consider Sarah, a higher-rate taxpayer with a BTL property in Manchester:

  • Annual rental income: £18,000
  • Annual mortgage interest: £8,000
  • Other allowable expenses: £2,000
  • Other income (salary): £60,000

Before Section 24 (old system):

  • Taxable rental profit: £18,000 - £8,000 - £2,000 = £8,000
  • Tax on rental profit at 40%: £3,200
  • Total tax on all income: £60,000 + £8,000 = £68,000 taxable income

After Section 24 (current system):

  • Rental income minus allowable expenses: £18,000 - £2,000 = £16,000
  • Total taxable income: £60,000 + £16,000 = £76,000
  • Additional higher-rate tax on extra £8,000: £3,200
  • Less tax credit for mortgage interest: £8,000 × 20% = £1,600
  • Net additional tax cost: £3,200 - £1,600 = £1,600 per year

Sarah now pays £1,600 more tax annually on the same property investment.

Section 24 can also push previously basic-rate taxpayers into higher-rate brackets. This creates a double penalty — you lose mortgage interest relief and face higher tax rates on other income.

Take James, whose salary is £48,000. His BTL portfolio generates £15,000 rental income with £10,000 annual mortgage interest:

  • Under the old system: £48,000 + (£15,000 - £10,000) = £53,000 total taxable income
  • Under Section 24: £48,000 + £15,000 = £63,000 total taxable income

James is now pushed £12,730 into the higher-rate tax band, paying 40% tax on income that previously attracted 20% tax. The 20% tax credit on his £10,000 mortgage interest only provides £2,000 relief — far less than the additional tax burden.

Strategic Options to Mitigate Section 24

Several strategies can help mitigate Section 24's impact, though each requires careful consideration of your specific circumstances.

Property Company Structure (Incorporation)

Many higher-rate taxpayers are exploring incorporation as a way to avoid Section 24 entirely. Companies aren't subject to the restriction and can still claim full mortgage interest relief.

However, incorporation brings corporation tax (19% for profits up to £250k, 25% main rate), dividend taxes, and additional compliance costs. It works best for landlords planning significant expansion or those with substantial mortgage interest relative to rental profits.

Portfolio Restructuring

Some landlords are reducing their BTL mortgages to minimize Section 24's impact. This might involve:

  • Selling highly mortgaged properties
  • Using proceeds to buy cash purchases
  • Focusing on commercial property (not subject to Section 24)

Income Splitting

Married couples can potentially reduce Section 24's impact by ensuring properties are owned by the spouse with lower overall income. This requires careful consideration of capital gains tax implications when transferring properties.

Planning for 2026 and Beyond

Making Tax Digital for Income Tax Property (ITSA) starts in April 2026, adding quarterly reporting requirements to the existing Section 24 burden. Higher-rate taxpayers will need robust record-keeping systems to manage both the tax restriction and new filing obligations.

Consider using professional calculators to model different scenarios and understand your true tax position under current rules.

Getting Professional Help

Section 24's interaction with higher-rate tax bands creates complex planning scenarios. The strategies that work best depend on your total income, family circumstances, investment goals, and appetite for restructuring.

Most higher-rate taxpayers benefit from specialist advice to model different approaches and understand the long-term implications of various strategies. Our services include detailed Section 24 analysis and restructuring advice tailored to your specific situation.

The rules are here to stay, but with proper planning, higher-rate taxpayers can still build profitable property portfolios despite Section 24's restrictions.