Section 24 has fundamentally changed how individual landlords can claim tax relief on mortgage interest. Introduced in April 2017 and fully implemented by April 2020, this legislation restricts mortgage interest relief to the basic rate of tax (20%) only.

For higher rate taxpayers, this represents a significant increase in their tax burden. Understanding how Section 24 works is crucial for any landlord with mortgage debt on their rental properties.

What is Section 24 Mortgage Interest Restriction?

Section 24 mortgage interest restriction limits the tax relief available on mortgage interest and other finance costs for residential rental properties owned by individuals. Previously, landlords could deduct full mortgage interest as an expense before calculating taxable profit.

Now, mortgage interest is treated as a tax credit rather than a deductible expense. This means you can only reduce your tax bill by 20% of your mortgage interest, regardless of your marginal tax rate.

The restriction applies to residential rental properties owned personally. It does not apply to commercial properties, Furnished Holiday Lets (FHLs), or properties owned through limited companies.

Section 24 Rules for 2025/26 Tax Year

The rules for Section 24 are now fully phased in and stable. For the 2025/26 tax year, the following applies:

  • Full Restriction: Individual landlords can only claim a 20% tax credit on their mortgage interest and other finance costs. The old system of deducting interest from rental income no longer applies.
  • Basic Rate: The tax credit is calculated at the basic rate of Income Tax, which is 20% for 2025/26.
  • Who it Affects: The restriction applies to individual landlords (including partnerships) of residential rental properties in the UK. It does not apply to limited companies, commercial properties, or Furnished Holiday Lets (FHLs).
  • Finance Costs: The restriction covers mortgage interest, interest on loans to buy furnishings, and fees associated with obtaining or repaying mortgages.

If you are filing a Self Assessment tax return for the 2025/26 year, you must declare your full rental income and then claim the 20% tax credit in the 'Tax reliefs' section of your return.

How Section 24 Works in Practice

Under the old system, a higher rate taxpayer could effectively claim 40% relief on mortgage interest. Under Section 24, everyone is limited to 20% relief. This change means mortgage interest is no longer deducted from your rental income. Instead, it's added back to your profit calculation, then you receive a 20% tax credit.

Here's a practical example: A landlord has rental income of £30,000 and mortgage interest of £15,000. Their other allowable expenses total £5,000.

  • Old system: Taxable profit = £10,000 (£30k - £15k - £5k).
  • New system: Taxable profit = £25,000 (£30k - £5k), but you get a £3,000 tax credit (20% of £15k).

The landlord now pays tax on £25,000 instead of £10,000, but gets a £3,000 tax credit. For a higher rate taxpayer, this significantly increases their tax bill.

Calculating Your Section 24 Impact

To understand your Section 24 impact, you need to calculate your tax under both the old and new systems. The difference shows your additional tax burden. Consider a landlord with total income of £55,000 (including £35,000 rental income), mortgage interest of £20,000, and other property expenses of £8,000.

  • Old System: Total income: £55,000. Less: Personal allowance: £12,570. Less: Mortgage interest: £20,000. Less: Other expenses: £8,000. Taxable income: £14,430. Tax due: £1,443 (all at 20%).
  • Section 24 System: Total income: £55,000. Less: Personal allowance: £12,570. Less: Other expenses: £8,000. Taxable income: £34,430. Tax due: £6,886 (£2,143 at 20% + £4,743 at 40%). Less: Tax credit: £4,000 (£20,000 × 20%). Net tax due: £2,886.

The additional tax burden is £1,443 per year – a 100% increase. For help with these calculations, you can use our dedicated Section 24 Calculator to model your specific situation.

Who is Affected and the Real Impact on Tax Brackets

Section 24 mortgage interest restriction affects individual landlords who own residential rental properties with mortgages. You're impacted if you own buy-to-let properties in your personal name, have mortgages secured against them, pay higher rate tax (40% or 45%), or are pushed into higher rate tax by the restriction itself.

The restriction is particularly painful for landlords who are pushed from basic rate to higher rate tax. This happens because mortgage interest can no longer be deducted before calculating your tax band.

Basic Rate Taxpayers

If your total income (including rental profit) keeps you in the 20% tax band, the impact is neutral. You pay 20% tax and get 20% relief – the same net effect as before.

Higher Rate and Additional Rate Taxpayers

This is where Section 24 bites hardest. Higher-rate taxpayers pay 40% tax on their full rental income but only receive 20% relief on mortgage interest. Take a landlord earning £60,000 from their day job plus £25,000 rental profit (after all expenses except mortgage interest of £10,000):

  • Total taxable income: £95,000 (£60k + £35k rental income)
  • Additional tax on rental income: 40% on £35,000 = £14,000
  • Mortgage interest relief: 20% of £10,000 = £2,000
  • Net additional tax: £12,000

Additional Consequences and Threshold Effects

Section 24 can push landlords into higher tax bands by increasing taxable income, creating several knock-on effects.

  • Loss of Personal Allowance: Once your adjusted net income exceeds £100,000, you start losing your personal allowance. This creates an effective 60% tax rate on income between £100,000 and £125,140.
  • Child Benefit Clawback: Higher taxable income can trigger the High Income Child Benefit Charge. This affects anyone earning over £50,000, with child benefit fully clawed back at £60,000.
  • Student Loan Repayments: Higher reported income can increase student loan repayments, even if your actual cash profit hasn't changed.
  • Impact on Pension Annual Allowance: For high earners, increased income can reduce the annual allowance for pension contributions.

Strategies to Manage the Impact of Section 24

Several strategies can help mitigate Section 24's impact, though each comes with its own considerations and costs.

Limited Company Incorporation

The most common solution is transferring properties to a limited company. Companies are not subject to Section 24 and can still deduct full mortgage interest as an expense. However, incorporation involves significant costs and considerations:

  • Capital gains tax on transfer (though incorporation relief may apply). Current CGT rates for residential property are 18% (basic rate) and 24% (higher rate).
  • Stamp duty land tax at commercial rates.
  • Corporation tax on company profits (19% on profits up to £250k, 25% main rate).
  • Personal tax when extracting funds from the company.

Our incorporation service can help you understand whether this strategy makes sense for your portfolio.

Pension Contributions

Increasing pension contributions can reduce your adjusted net income, potentially keeping you in the basic rate band or avoiding benefit clawbacks. The annual allowance for 2024/25 is £60,000, though this may be reduced for high earners.

Spouse/Partner Transfer or Income Splitting

If your spouse or civil partner has a lower marginal tax rate, transferring properties or shares in properties might reduce the overall tax burden. This can be particularly effective if one partner is a basic rate taxpayer. However, this requires completing Form 17 and affects both income and mortgage interest allocation proportionally.

Portfolio Restructuring and Optimisation

Some landlords reduce mortgage debt by selling highly mortgaged properties, using sale proceeds to pay down other mortgages, or focusing on lower loan-to-value investments. Switching to commercial properties or Furnished Holiday Lets (which are exempt from Section 24) is another option. The math has fundamentally changed for highly geared investments.

Long-term Property Strategy and Professional Advice

Section 24 has changed the fundamentals of property investment for individual landlords. Many investors are now considering whether the traditional buy-to-let model remains viable. Key considerations include future mortgage interest rates, your overall income and tax position, the costs and benefits of incorporation, and alternative investment structures.

Given the complexity and potential tax savings involved, specialist advice is often worthwhile. The costs of restructuring may be significant, but the long-term tax savings can be substantial. Our team specialises in helping landlords navigate Section 24 and implement effective solutions.

Before making any major decisions, it's essential to model the actual impact on your specific situation. Our calculators can help you understand how Section 24 affects your tax position.

Looking Ahead

With Making Tax Digital for Income Tax Property starting in April 2026, landlords will need even more robust record-keeping and reporting processes. The mortgage interest tax relief changes aren't going anywhere. If anything, the trend suggests continued scrutiny of property investment tax advantages.

Understanding these rules and planning accordingly isn't just about minimising this year's tax bill – it's about ensuring your property portfolio remains viable and profitable in the long term.