Section 24 of the Finance Act 2017 fundamentally changed how UK landlords can claim tax relief on mortgage interest. Instead of deducting full mortgage interest from rental income, landlords now receive a basic rate tax credit of 20%.

This restriction has created significant tax increases for many property investors, particularly those paying higher or additional rate tax. Understanding Section 24 is essential for managing your property portfolio tax efficiently.

What is Section 24?

Section 24 replaced the previous system where landlords could deduct mortgage interest as a business expense. Under the old rules, if you earned £30,000 rental income and paid £15,000 in mortgage interest, you were taxed on £15,000 profit.

Now, you're taxed on the full £30,000 rental income, but receive a 20% tax credit on the £15,000 mortgage interest (worth £3,000). For higher-rate taxpayers, this represents a substantial tax increase.

How Section 24 Works

The restriction applies to residential buy-to-let properties owned personally. Here's the step-by-step calculation:

  • Calculate gross rental income
  • Deduct allowable expenses (not including mortgage interest)
  • Add this profit to your other income for tax purposes
  • Apply income tax rates to determine tax due
  • Claim 20% tax credit on mortgage interest paid

The mortgage interest restriction covers interest on loans used to purchase, improve, or refinance rental properties. It includes mortgage interest, loan arrangement fees spread over the loan term, and interest on bridging loans.

Section 24 Tax Impact Examples

Basic Rate Taxpayer

A landlord with £25,000 rental income, £20,000 other expenses, and £8,000 mortgage interest:

  • Taxable rental profit: £25,000 - £20,000 = £5,000
  • Income tax at 20%: £1,000
  • Tax credit (20% of £8,000): £1,600
  • Net position: £600 tax refund

Higher Rate Taxpayer

The same landlord, but already earning £55,000 from employment:

  • Total income: £55,000 + £5,000 = £60,000
  • Tax on rental profit at 40%: £2,000
  • Tax credit remains: £1,600
  • Additional tax due: £400

Under the old rules, this landlord would have had no additional tax liability on the rental property.

Who is Affected by Section 24?

Section 24 mortgage interest restriction affects individual landlords who own residential buy-to-let properties with mortgages. The impact is most severe for:

  • Higher and additional rate taxpayers
  • Landlords with high loan-to-value mortgages
  • Portfolio owners with significant mortgage interest
  • Those earning just above the higher rate threshold

The restriction doesn't apply to furnished holiday lets, commercial properties, or properties held within companies.

Threshold Effects and Tax Band Interactions

Section 24 can push landlords into higher tax bands by increasing taxable income. A landlord earning £45,000 from employment with £8,000 rental profit now has £53,000 taxable income, crossing into the higher rate band.

This threshold effect can trigger:

  • Loss of personal allowance (income over £100,000)
  • Higher rate tax on rental profits
  • Reduced child benefit entitlement
  • Impact on pension annual allowance

Strategies for Managing Section 24

Property Company Incorporation

Many landlords consider incorporation to avoid Section 24. Companies can still deduct mortgage interest as a business expense, but this route involves corporation tax, potential capital gains on transfer, and ongoing compliance costs.

Portfolio Restructuring

Some landlords reduce mortgage debt by:

  • Selling highly mortgaged properties
  • Using sale proceeds to pay down other mortgages
  • Focusing on lower loan-to-value investments
  • Switching to commercial or furnished holiday lets

Pension Contributions

Increasing pension contributions can reduce taxable income, potentially bringing landlords back into the basic rate band and reducing the Section 24 impact.

Record Keeping for Section 24

Landlords must maintain detailed records of mortgage interest payments. This includes:

  • Annual mortgage statements
  • Interest certificates from lenders
  • Records of arrangement fees
  • Documentation for any loan variations

With Making Tax Digital for Income Tax Property starting in April 2026, digital record keeping will become mandatory for many landlords.

Section 24 and Joint Ownership

Married couples and civil partners can allocate rental income between them to optimise tax positions. If one spouse is a basic rate taxpayer, allocating more income to them reduces the Section 24 impact.

However, this requires completing Form 17 and affects both income and mortgage interest allocation proportionally.

Getting Professional Advice

Section 24 calculations can be complex, particularly when combined with other tax considerations. The restriction interacts with capital gains tax planning, inheritance tax, and business structure decisions.

Many landlords benefit from professional advice to model different scenarios and understand their options. Our property tax services include Section 24 impact assessments and restructuring advice.

Future Changes to Section 24

Section 24 mortgage interest restriction is now fully implemented, with no announced changes planned. However, landlords should monitor potential policy developments, particularly around:

  • Further restrictions on property tax reliefs
  • Changes to incorporation tax treatment
  • Modifications to capital gains tax rules

The restriction remains a significant factor in property investment decisions and ongoing portfolio management for UK landlords.