Section 24 of the Finance (No. 2) Act 2015 removed the ability of individual landlords to deduct residential mortgage interest and other finance costs from rental income. Instead you get a basic rate tax reducer worth 20% of the finance costs, cut from your final tax bill. It phased in between April 2017 and April 2020 and has applied in full since the 2020/21 tax year.

What is the Section 24 tax reducer worth in 2026/27?

20% of your allowable finance costs, applied as a credit against your income tax liability. From April 2027 the reducer rises to 22% under Finance Act 2026, which was enacted on 18 March 2026, because it tracks the new 22% basic rate on property income (property income is taxed at 22%, 42% and 47% from 6 April 2027 in England, Wales and Northern Ireland). The reducer is capped at 20% of the lowest of your finance costs, your property profits, and your adjusted total income above the personal allowance, and at 22% of that lowest figure from 2027/28.

Does Section 24 apply to limited companies?

No. Companies deduct mortgage interest in full against rental profits before corporation tax. This is why incorporation is the most common structural response to Section 24, although the transfer itself can trigger capital gains tax and stamp duty land tax.

How does Section 24 affect basic-rate taxpayers?

If all your income stays within the basic rate band, relief at 20% equals the rate you pay and there is no extra cost. The trap is that adding back the interest inflates your taxable profit, so landlords who were comfortably basic rate on a real-world profit can be pushed into the higher rate band on a restricted one.

Is Section 24 being repealed or reversed?

No repeal has been announced. Finance Act 2026 raises the reducer from 20% to 22% from April 2027, but only because property income moves to separate 22%, 42% and 47% rates on the same day, so a higher-rate landlord is worse off overall, not better. The mechanism is intact. Plan on the restriction staying, not on it being withdrawn.

What happens if my finance costs are more than my rental profit?

The reducer is capped, so relief for the excess is not lost but carried forward to future tax years and used when there is enough profit to absorb it. Landlords with loss-making years often accumulate a carried-forward pool of unrelieved finance costs, which is worth tracking, since it can be worth real money once profits recover.

Can I transfer property to my spouse to reduce Section 24 tax?

Often, yes. Transfers between spouses and civil partners are treated as no gain, no loss for capital gains tax, so moving income to a lower-earning partner can shift rental profit out of the higher rate band. Jointly held property is taxed 50/50 by default, and a different split needs both beneficial ownership evidence and a Form 17 election filed with HMRC within 60 days.

Do pension contributions help with Section 24?

They can. A personal pension contribution extends your basic rate band by the gross amount, so profit that would have been taxed at 40% can fall back into the 20% band. It does not change the finance cost restriction itself, it changes the rate applied to the profit sitting above the threshold.

Does Section 24 apply to holiday lets?

Yes, for periods from 6 April 2025. The furnished holiday lettings regime was abolished, and with it the full interest deduction that holiday let owners previously enjoyed. Holiday lets held in your own name now fall inside the same restriction as standard residential lettings.

How do I report the Section 24 reducer on my tax return?

Residential finance costs go in the dedicated box on the UK property pages of your Self Assessment return, not in the allowable expenses boxes. HMRC then calculates the reducer automatically. Putting the interest in the wrong box overstates your expenses and understates your profit, which is a common source of amendments and enquiries.

Section 24 explained: mortgage interest relief for landlords

You pay tax on rent you never keep. Section 24 taxes your rental income before your mortgage interest, then hands back relief at 20%, rising to 22% in April 2027 when property income gets its own 22%, 42% and 47% rates.

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What is Section 24?

Section 24 of the Finance (No. 2) Act 2015 stopped individual landlords deducting residential mortgage interest from rental income. Before it, interest was an ordinary expense: rent in, costs out, tax on what was left. Now the interest is added back, you are taxed on the larger figure, and you receive a basic rate tax reducer worth 20% of the finance costs as a credit against the final bill.

The restriction phased in over four years from April 2017 and has applied in full since the 2020/21 tax year. It bites on anything that counts as a finance cost, which means mortgage and loan interest, interest on borrowing used to buy furnishings or fund improvements, overdraft interest on a lending facility used for the property business, and the incidental costs of raising that finance such as arrangement and broker fees.

Repairs, insurance, letting agent fees, ground rent, service charges, accountancy and the replacement of domestic items relief are untouched. They still come off rental income in the ordinary way. Only the finance side moved. Section 24 is one part of a wider picture, our landlord tax guide covers every tax that touches a let property.

How much is the tax reducer worth in 2026/27 and 2027/28?

For 2026/27 the reducer is 20% of your allowable finance costs. From April 2027 it rises to 22% under Finance Act 2026, enacted on 18 March 2026. Read that on its own and it looks like the first softening of the regime since it was introduced. It is not. The reducer rises because property income itself moves to separate rates of 22%, 42% and 47%from 6 April 2027 in England, Wales and Northern Ireland, and the reducer is fixed to the property basic rate. A basic-rate landlord is neutral, 22% relief against 22% tax. A higher-rate landlord gains 2% of the interest bill and loses 2% of the whole property profit, which is a net cost wherever profit before finance costs exceeds the interest.

The reducer is capped. It is calculated on the lowest of three figures: your finance costs for the year, your property profits for the year, and your adjusted total income above the personal allowance. Anything the cap blocks is not lost, it carries forward and is relieved in a later year when there is enough profit to absorb it.

Worked example: £50,000 rent, £18,000 interest, £40,000 salary

Rent of £50,000, running costs of £8,000 and mortgage interest of £18,000. Real economic profit is £24,000. Taxable property profit under Section 24 is £42,000, because the interest is added back.

Step	2026/27 (20%)	2027/28 (22/42/47, reducer 22%)
Total income (salary plus restricted profit)	£82,000	£82,000
Income tax before the reducer	£20,232	£21,072
Finance cost reducer	£3,600	£3,960
Income tax payable	£16,632	£17,112

The 2027/28 column is higher because the £42,000 of restricted profit is taxed at the property rates: £10,270 of it fills what is left of the basic band at 22% (£2,259) and £31,730 falls at 42% (£13,327), while the salary is still taxed at 20%. The reducer rises by £360 and the tax on the property rises by £840, so the bill goes up £480.

Under the old rules the same landlord would have declared £24,000 of profit and paid £13,032 in 2026/27, or £13,512 in 2027/28 at the property rates. Section 24 costs £3,600 a year in both, on identical cash flows: the 20 point wedge between the 42% rate and the 22% reducer is exactly the wedge between 40% and 20% today. The figures use England, Wales and Northern Ireland rates with the standard personal allowance and no other reliefs. Scotland is outside the new property rates and Scottish bands change the arithmetic.

For the mechanics of the calculation itself, see our step-by-step guide to working out the tax credit and a full worked example on a £50k rental portfolio. To model your own portfolio in a minute, use the Section 24 calculator.

Who does Section 24 hit hardest?

The cost is not spread evenly. It concentrates on landlords whose marginal rate is above 20% and whose borrowing is large relative to rent.

Higher and additional-rate taxpayers

If your total income takes you past £50,270, you pay 40% or 45% on the top of your rental profit but only get relief on finance costs at 20%. That 20 to 25 point gap is the whole of Section 24. It does not narrow in April 2027: the reducer rises to 22%, but property income moves to its own 22%, 42% and 47% rates at the same time, so the gap stays 20 or 25 points.

Leveraged portfolios on interest-only debt

The pain scales with the size of your mortgage interest bill, not with your profit. A landlord on 75% loan to value with interest-only borrowing can show a taxable profit far larger than the cash actually reaching the bank account.

Landlords sitting just under a threshold

Section 24 inflates the taxable profit HMRC sees, so it drags people over the £50,270 higher-rate threshold, over the £60,000 high income child benefit charge point, and into the £100,000 to £125,140 band where the personal allowance tapers away at an effective 60%.

Furnished holiday let owners, since April 2025

The furnished holiday lettings regime was abolished from 6 April 2025. Full interest deduction went with it, so holiday lets held personally now sit inside the same finance cost restriction as ordinary buy-to-lets.

The threshold effects are where landlords get caught out, because the extra tax lands somewhere they were not looking. Our guides on being pushed into higher-rate tax and the high income child benefit charge cover the two most common versions.

Who is not affected?

Limited companies

A company letting residential property deducts mortgage interest in full as a business expense against corporation tax. This is the single biggest reason landlords look at incorporation.

Commercial and mixed-use property

The restriction applies to residential lettings. Interest on a loan funding commercial premises stays fully deductible, and a mixed-use building needs a fair apportionment between the two.

Basic-rate taxpayers with headroom

If every pound of your income stays inside the 20% band, relief at 20% matches the rate you pay and the restriction costs you nothing. The risk is that the restricted profit itself pushes you out of that band.

Loans that are not finance costs

Letting agent fees, repairs, insurance, ground rent, service charges and accountancy remain fully deductible in the normal way. Only interest, and incidental costs of raising finance such as arrangement fees, are restricted.

If you sit in the basic rate band today, the question is how much headroom you have before the restricted profit tips you over. Our note on Section 24 and basic-rate taxpayers sets out where that line falls.

How can you reduce the cost of Section 24?

There is no way to opt out of the restriction while holding residential property personally. What you can change is the rate applied to the profit, who receives that profit, and the structure holding the asset. Four routes do most of the work. If you want the options modelled against your own figures rather than worked through here in general terms, our property tax advice service reviews and prices them.

Incorporation

A company deducts interest in full, so incorporation removes the restriction outright. It is also the most expensive route to get wrong: transferring property to your own company is a disposal at market value for capital gains tax and normally triggers stamp duty land tax on the same day, with mortgage redemption and refinancing costs on top. It works when the annual saving recovers those costs over a realistic holding period, and it does not when you are close to selling. Our incorporation feasibility analysis models both sides, and the comparison of staying personal against incorporating shows how the break-even moves.

Spouse and civil partner transfers

Moving beneficial ownership to a lower-earning spouse shifts rental profit into a lower band, and the transfer itself is no gain, no loss for capital gains tax. Jointly held property is taxed 50/50 by default, so an unequal split needs the beneficial interests documented and a Form 17 election filed with HMRC within 60 days of the declaration. Get the paperwork order wrong and HMRC taxes the default split regardless of intent. See our guide to joint ownership and the income split.

Rate-band and pension planning

A personal pension contribution extends your basic rate band by the gross amount contributed, which pulls restricted profit back down from 40% to 20%. The same lever protects the personal allowance in the £100,000 to £125,140 range and the child benefit charge above £60,000. Timing capital expenditure, deciding when to bring forward repairs, and controlling how much other income you draw in a given year all work the same way. Details in our pension contribution planning guide.

Debt and portfolio structure

Where borrowing sits matters. Interest on lending secured against commercial or mixed-use property is not restricted, capital repayment reduces the interest bill directly, and new acquisitions can be bought through a company from the outset without the capital gains tax and stamp duty cost of a transfer. Also check whether you have carried-forward unrelieved finance costs from earlier years sitting unused. Our guides on remortgaging a buy-to-let and interest-only mortgage planning cover the trade-offs.

What changes in April 2027, and should you wait for it?

Finance Act 2026 gives property income its own rates of 22%, 42% and 47% from 6 April 2027 in England, Wales and Northern Ireland, and lifts the reducer to the new 22% basic rate at the same time. Scotland is carved out for 2027/28 and Scottish taxpayers keep Holyrood-set rates. Nothing else about the mechanism changes: the interest is still added back, the cap still applies, and the carry-forward still works the same way. On a £20,000 annual interest bill the higher reducer is worth £400, but a higher-rate landlord also pays 2% more on every pound of restricted property profit, so unless your profit before finance costs is smaller than your interest bill you end up paying more.

So there is nothing to wait for. If incorporation stacked up at a 20% reducer it stacks up slightly harder from April 2027, because the wedge is unchanged at 20 points while the rate on retained property profit rises. The larger variables are your marginal rate, your loan to value, how long you intend to hold, and the capital gains and stamp duty cost of moving. Our 2027 tax year planning guide works through what to bring forward and what to leave.

Two other 2026 changes land on the same landlords. Making Tax Digital for income tax applies to landlords with qualifying income over £50,000 from April 2026 and over £30,000 from April 2027, which means quarterly updates rather than one annual return. The writing down allowance on plant and machinery falls from 18% to 14%, with a new 40% first year allowance for main pool expenditure and the special rate unchanged at 6%. If you are rebuilding your record keeping for Making Tax Digital anyway, that is the moment to fix how finance costs are captured.

For the underlying rates in one place, see our UK property tax rates reference, and for the full library on this topic, our Section 24 and tax relief guides run to more than forty pieces covering individual scenarios.

What does a Section 24 review actually involve?

We start with your last filed return and your current lending, work out what the restriction is costing you this year and next, then price the realistic alternatives against that number. You get a written recommendation, not a brochure. Fees depend on portfolio size and complexity, so the honest answer is that we quote after a short consultation.

✓The actual annual cost of the restriction to you, at 20% now and 22% from April 2027 against the new 22/42/47 property rates
✓A check that finance costs were reported in the right box on previous returns, and any carried-forward pool you have not used
✓Threshold modelling for the higher rate band, the personal allowance taper and the child benefit charge
✓Ownership options costed properly: incorporation with capital gains tax and stamp duty included, spouse transfers, and doing nothing
✓A written recommendation you can act on, or hand to a broker or solicitor

A generalist accountant will file your return correctly. The difference here is that we look at the structure behind the return, which is where the money on a leveraged portfolio actually is. Most portfolios we review have at least one of these open: interest in the wrong box, an unequal ownership split never documented, or an incorporation decision made on rules of thumb rather than numbers.

Section 24 questions

What is Section 24?: Section 24 of the Finance (No. 2) Act 2015 removed the ability of individual landlords to deduct residential mortgage interest and other finance costs from rental income. Instead you get a basic rate tax reducer worth 20% of the finance costs, cut from your final tax bill. It phased in between April 2017 and April 2020 and has applied in full since the 2020/21 tax year.
What is the Section 24 tax reducer worth in 2026/27?: 20% of your allowable finance costs, applied as a credit against your income tax liability. From April 2027 the reducer rises to 22% under Finance Act 2026, which was enacted on 18 March 2026, because it tracks the new 22% basic rate on property income (property income is taxed at 22%, 42% and 47% from 6 April 2027 in England, Wales and Northern Ireland). The reducer is capped at 20% of the lowest of your finance costs, your property profits, and your adjusted total income above the personal allowance, and at 22% of that lowest figure from 2027/28.
Does Section 24 apply to limited companies?: No. Companies deduct mortgage interest in full against rental profits before corporation tax. This is why incorporation is the most common structural response to Section 24, although the transfer itself can trigger capital gains tax and stamp duty land tax.
How does Section 24 affect basic-rate taxpayers?: If all your income stays within the basic rate band, relief at 20% equals the rate you pay and there is no extra cost. The trap is that adding back the interest inflates your taxable profit, so landlords who were comfortably basic rate on a real-world profit can be pushed into the higher rate band on a restricted one.
Is Section 24 being repealed or reversed?: No repeal has been announced. Finance Act 2026 raises the reducer from 20% to 22% from April 2027, but only because property income moves to separate 22%, 42% and 47% rates on the same day, so a higher-rate landlord is worse off overall, not better. The mechanism is intact. Plan on the restriction staying, not on it being withdrawn.
What happens if my finance costs are more than my rental profit?: The reducer is capped, so relief for the excess is not lost but carried forward to future tax years and used when there is enough profit to absorb it. Landlords with loss-making years often accumulate a carried-forward pool of unrelieved finance costs, which is worth tracking, since it can be worth real money once profits recover.
Can I transfer property to my spouse to reduce Section 24 tax?: Often, yes. Transfers between spouses and civil partners are treated as no gain, no loss for capital gains tax, so moving income to a lower-earning partner can shift rental profit out of the higher rate band. Jointly held property is taxed 50/50 by default, and a different split needs both beneficial ownership evidence and a Form 17 election filed with HMRC within 60 days.
Do pension contributions help with Section 24?: They can. A personal pension contribution extends your basic rate band by the gross amount, so profit that would have been taxed at 40% can fall back into the 20% band. It does not change the finance cost restriction itself, it changes the rate applied to the profit sitting above the threshold.
Does Section 24 apply to holiday lets?: Yes, for periods from 6 April 2025. The furnished holiday lettings regime was abolished, and with it the full interest deduction that holiday let owners previously enjoyed. Holiday lets held in your own name now fall inside the same restriction as standard residential lettings.
How do I report the Section 24 reducer on my tax return?: Residential finance costs go in the dedicated box on the UK property pages of your Self Assessment return, not in the allowable expenses boxes. HMRC then calculates the reducer automatically. Putting the interest in the wrong box overstates your expenses and understates your profit, which is a common source of amendments and enquiries.

Find out what Section 24 is costing you

Book a consultation. We will quantify the restriction on your portfolio and price the alternatives against it.

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