Section 24 Tax Relief for Landlords: Complete Guide

Section 24 is the tax rule that turned a profitable, leveraged buy-to-let into a loss-making one for some landlords without their rent or their mortgage changing by a penny. It works by refusing to let individual residential landlords deduct mortgage interest from rental profit. Instead, you are taxed on a higher profit figure and handed a flat-rate credit that, for higher and additional-rate taxpayers, never makes you whole. This guide explains exactly how the mechanism works, who actually loses money, which strategies genuinely move the needle (and which are myths), and what the 2027/28 changes mean for the credit.

What Section 24 actually does

Before April 2017, a landlord deducted mortgage interest as a business expense, exactly like insurance or agent fees. If you paid £10,000 of interest and were a 40% taxpayer, that deduction was worth £4,000 in tax saved. Section 24 (technically the finance-cost restriction now in ITTOIA 2005 ss.272A and 274A onwards) removed that deduction in stages between 2017 and 2020 and replaced it with a basic-rate tax credit.

Under the current rules, the steps are:

• Calculate your rental profit without deducting any mortgage interest.
• Add that profit to your other income and work out income tax at your normal marginal rates.
• Reduce the tax bill by a credit equal to 20% of your finance costs (for 2026/27, rising to 22% from 2027/28, explained below).

For a genuine basic-rate taxpayer, getting relief as a 20% credit instead of a 20% deduction is broadly the same outcome. For a 40% or 45% taxpayer, it is not. You are now taxed at your full marginal rate on profit that is partly just covering the mortgage, while the relief is pegged at the lower credit rate. That gap is the "Section 24 wedge", and it is the whole problem.

The restriction applies to individuals, partnerships and trusts. It does not apply to limited companies, which still deduct interest in full before corporation tax. That single distinction drives most of the strategy discussion later in this guide and on our Section 24 versus incorporation comparison.

Who Section 24 hurts, and by how much

The honest answer is that Section 24 is not a uniform tax rise. It bites in proportion to two things: how leveraged you are, and how high your marginal rate is. The table below shows the relief on £12,000 of mortgage interest under the old rules versus Section 24, and the annual cost of the change, by taxpayer type.

Taxpayer type	Old relief on £12,000 interest	Section 24 credit (2026/27)	Annual cost of Section 24
Basic rate (20%)	£2,400	£2,400	£0
Higher rate (40%)	£4,800	£2,400	£2,400
Additional rate (45%)	£5,400	£2,400	£3,000

The numbers tell you where to focus. A truly basic-rate landlord is broadly neutral. A higher-rate landlord loses a fifth of their interest in real tax. An additional-rate landlord loses a quarter. And the worse cases are not on this table at all, because they involve landlords being pushed from one band to the next by the rule itself, which the next section covers.

The hidden trap: Section 24 and the basic-rate band

This is the part that catches people out. Because mortgage interest is no longer deducted, your taxable income is calculated on the gross profit, not the net. A landlord whose profit after interest looks comfortably within the basic-rate band can have a profit before interest that crosses into higher-rate territory. The moment that happens, part of the profit is taxed at 40% while the interest relief stays at 20%, and a landlord who genuinely thought of themselves as a basic-rate taxpayer starts losing money to Section 24.

The same mechanism feeds the £100,000 personal allowance taper. Between £100,000 and £125,140 of adjusted net income, you lose £1 of personal allowance for every £2 of income, producing an effective marginal rate of 60%. Section 24 inflates the income figure used for that taper, so a leveraged landlord can be dragged into the 60% zone purely because interest is added back. We explain this interaction in depth in can Section 24 push you into the higher-rate band.

The practical lesson: never assess your Section 24 exposure on net-of-interest profit. Always start from profit before interest, because that is the figure HMRC uses to set your bands.

A worked example

Take a higher-rate landlord, employed on a £60,000 salary, with a single buy-to-let:

• Rental income: £18,000
• Mortgage interest: £9,000
• Other allowable costs (insurance, agent, repairs): £3,000

Under the old rules, taxable rental profit would be £18,000 minus £9,000 minus £3,000 = £6,000, taxed at 40% = £2,400 of tax.

Under Section 24, the calculation runs differently:

• Rental profit ignoring interest: £18,000 minus £3,000 = £15,000.
• Because the salary already uses the basic-rate band, this £15,000 is taxed at 40% = £6,000.
• Section 24 credit: 20% of £9,000 interest = £1,800.
• Net tax on the property: £6,000 minus £1,800 = £4,200.

Same rent, same mortgage, same costs, but the tax has risen from £2,400 to £4,200, an extra £1,800 a year. That £1,800 is exactly the 20% wedge on the £9,000 of interest (40% would have given £3,600 of relief; the credit gives £1,800). For a worked walk-through with the three-way cap applied, see how to calculate the Section 24 tax credit step by step, or run your own figures through our Section 24 calculator.

The three-way cap on the credit

The credit is not simply 20% of whatever interest you paid. It is 20% (22% from 2027/28) of the lowest of three figures:

• your total residential finance costs for the year;
• your total rental profits for the year, before finance costs;
• your adjusted total income above the personal allowance.

Most landlords with healthy profits and ordinary employment income are limited by the first figure (finance costs), so the cap is invisible. It bites in lower-profit or low-income years: a heavily geared property that makes little profit, a year of major void periods, or a year where your other income falls (redundancy, a career break, retirement). When the cap restricts the credit, the unrelieved finance cost is carried forward indefinitely under ITTOIA 2005 s.274A/274AA and added to the next year's finance costs, where it is re-tested. Nothing is lost permanently, but the relief can be deferred for years.

Which finance costs are caught

Section 24 covers more than the headline mortgage payment, but only the financing element:

• Buy-to-let mortgage interest (the interest, never the capital repayment).
• Interest on remortgages and further advances secured on rental property, subject to HMRC's withdrawal rule on equity released above the value when the property entered the lettings business.
• Loan arrangement fees and broker fees treated as finance costs.
• Interest on bridging loans and on personal loans where the funds were genuinely used in the rental business.

It does not touch commercial property finance, which keeps full deductibility. And it no longer spares furnished holiday lets: since the FHL regime was abolished on 6 April 2025, former holiday lets are taxed as ordinary residential property and their interest now falls inside Section 24.

Costs Section 24 does not touch

Everything that is not a finance cost still comes off rental profit in full, pound for pound, before tax is calculated. That includes:

• Repairs and maintenance (not improvements, which are capital).
• Landlord insurance premiums.
• Letting agent and management fees.
• Ground rent and service charges.
• Legal, accountancy and other professional fees.
• Safety certificates, inspections and compliance costs.

Because the tax treatment now diverges so sharply, your records must keep finance costs cleanly separated from ordinary running costs. Lumping a broker fee in with general expenses, or missing interest on a further advance, distorts the whole calculation.

Strategy: what genuinely works (and what does not)

There is no clever box to tick that switches Section 24 off for an individual. Be sceptical of anyone marketing a guaranteed workaround, because most "schemes" trade a tax saving for an enquiry risk. The levers that actually do something are these:

• Reduce leverage. The wedge is a percentage of your interest, so less debt means a smaller wedge. Overpaying or paying down a mortgage has to be weighed against the return on that capital elsewhere, but it directly shrinks the problem.
• Hold new geared property in a company. A limited company deducts interest in full. For fresh, heavily mortgaged purchases this is often the right structure from day one. See our buy-to-let limited company guide.
• Split income with a lower-rate spouse. Where a property is jointly owned, a Form 17 election can match the income split to the actual beneficial ownership, moving profit to the spouse with the lower marginal rate so more of the relief is effective.
• Manage adjusted net income. Keeping income below the £100,000 taper, for example through pension contributions, can be worth more than the headline interest relief itself.
• Time disposals. Selling in a year when your other income is lower keeps gains and profits from stacking into the worst bands.

What does not work as a standalone fix: simply raising rent (extra profit is taxed at your marginal rate, the relief stays capped), or assuming incorporation is automatically beneficial (the one-off SDLT and CGT can dwarf several years of saving).

Incorporation: a real option, not a magic bullet

Because companies sit outside Section 24, incorporation is the most discussed response, and the most over-sold. Transferring a personally-held portfolio into a company is a disposal for CGT (at 18% and 24% on residential gains for 2026/27, after the £3,000 annual exempt amount) and a purchase for SDLT, including the additional-dwelling surcharge in most cases. Incorporation relief under TCGA 1992 s.162 can defer the CGT where the lettings activity is a genuine business under active management, but since Finance Act 2026 it must be claimed for transfers on or after 6 April 2026, and it does not relieve the SDLT.

Inside the company you then face corporation tax (19% small profits rate up to £50,000, 25% above £250,000, with marginal relief between) and dividend tax when you extract profit. For some leveraged higher-rate landlords the long-run saving clears those costs comfortably; for others it never does. This is a modelling exercise, not a default. Our guide to extracting money from a property company covers the other side of that decision.

What changes from 2027/28

From 6 April 2027, the UK introduces separate property income tax rates of 22% basic, 42% higher and 47% additional, enacted by Finance Act 2026 (Royal Assent 18 March 2026, ss.6-7). These apply to property income in England, Wales and Northern Ireland; only Scotland is carved out, where Holyrood-set rates continue to apply. Scottish and Welsh powers to set their own property rates are a separate future enabling power that is not in force for 2027/28.

The change that matters for Section 24 sits alongside this. Finance Act 2026 gives the finance-cost reducer at the new 22% property basic rate, not the old 20% (Sch 1, amending ITTOIA 2005 ss.274AA/274C and ITA 2007 s.399B). So from 2027/28:

• A basic-rate landlord still sees no wedge, because the 22% credit matches the 22% rate on their property income.
• A higher or additional-rate landlord's relief edges up from 20% to 22%, a small improvement, while their rate is 42% or 47%, so the wedge narrows slightly but does not close.

The headline to avoid is the common error that the credit "stays at 20% while rates rise", opening a new basic-rate wedge. It does not. The reducer tracks the property basic rate up to 22%. We cover the wider rate change in our 2027 property tax rates and Section 24 relief guide.

Making Tax Digital and Section 24 record keeping

Section 24 already demands cleaner records than the old deduction rules, because finance costs and ordinary costs are now treated differently. Making Tax Digital for Income Tax raises the bar again. MTD for Income Tax is live and phasing in by qualifying income: from 6 April 2026 for landlords and sole traders with qualifying income above £50,000, from 6 April 2027 for those above £30,000, and from 6 April 2028 for those above £20,000. In scope, you must keep digital records and file quarterly updates using compatible software.

For Section 24 specifically, that means recording mortgage interest by property, separating finance costs from fully deductible costs in your software from the start, and carrying forward any unrelieved finance cost where the three-way cap bit in an earlier year. Get the categorisation right at source and the credit calculation follows automatically. Our MTD software guide for landlords walks through the options.

Pulling it together

Section 24 is permanent, it bites in proportion to your leverage and your marginal rate, and its worst damage is done indirectly, by pushing profit into higher bands and the 60% taper zone. The strategies that work are unglamorous: less debt, the right ownership structure for new purchases, spousal splits, income management, and disciplined records ready for MTD. The 2027/28 change moves the reducer up to 22% in step with the new property basic rate, so no new wedge opens. The right answer for any individual landlord depends on the numbers, and the levers interact, so model them together rather than reaching for a single fix.