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.
Sound familiar?
Taxed on rent that never reaches you
Section 24 taxes your rental income before your mortgage interest, then hands back relief at 20%. Most landlords felt the bill rise without ever being told why, or whether theirs was even calculated correctly.
If one of these is the sentence going round your head, it is worth putting a number on it.
Book a Section 24 reviewThe mechanism
What is Section 24?
Section 24 of the Finance (No. 2) Act 2015 stopped individual landlords deducting residential mortgage interest from rental income. It phased in over four years from April 2017 and has applied in full since the 2020/21 tax year. The operative provisions sit in ITTOIA 2005 sections 274AA to 274C and ITA 2007 section 399B.
The distinction that matters is between a deduction and a reducer. Finance costs no longer come off your rental profit at all. They are replaced by a basic rate tax reducer applied against your final income tax liability, which is a different thing arriving at a different point in the calculation. Your taxable profit is larger for every other purpose that reads it: the higher rate threshold, the high income child benefit charge, and the taper of the personal allowance above £100,000.
It applies to individuals, partnerships and trusts holding residential property. It does not apply to limited companies, which still deduct interest in full before corporation tax, and that single difference is what drives most of the incorporation questions landlords bring us.
Before April 2017
Interest was an ordinary expense
- Rent received
- £50,000
- Less running costs
- (£8,000)
- Less mortgage interest
- (£18,000)
Rent in, costs out, tax on what was left.
Now
The interest is added back
- Rent received
- £50,000
- Less running costs
- (£8,000)
- Less mortgage interest
- (£18,000)
Then a basic rate tax reducer worth 20% of the £18,000, or £3,600, comes off the final bill.
Note: Example figures displayed
Only the finance side moved. Section 24 is one part of a wider picture, and our landlord tax guide covers every tax that touches a let property.
Restricted
- Mortgage and loan interest
- Interest on borrowing for furnishings or improvements
- Overdraft interest on a property business facility
- Arrangement and broker fees for raising that finance
Still fully deductible
- Repairs and maintenance
- Insurance and ground rent
- Letting agent fees and service charges
- Accountancy and replacement of domestic items relief
What it costs
How much is the tax reducer worth in 2026/27 and 2027/28?
£50,000 of rent, £8,000 of running costs, £18,000 of mortgage interest.
£18,000 of interest you paid, added back
£3,600
A year, on identical cash flows. Taxed at 40% on that slice, relieved at 20%. From April 2027 the rates become 42% and 22%, so the wedge is unchanged.
Note: Example figures displayed
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 only 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. Which way that lands depends entirely on your own rate.
No change
If you are a basic-rate taxpayer
You are neutral. 22% of relief against 22% of tax is the same trade you make today at 20% and 20%.
You pay more
If you are a higher-rate taxpayer
You gain 2% of your interest bill and lose 2% of your whole property profit, which is a net cost wherever profit before finance costs exceeds the interest.
The reducer is capped at whichever of these three is lowest
Your finance costs for the year
Interest, arrangement fees and the interest element of most finance.
Your property profits for the year
Profit after every other allowable cost, but before the finance costs are taken off.
Your adjusted total income above the personal allowance
Everything you are taxed on, property and otherwise, less 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.
Note: Example figures displayed
Want this number for your own portfolio?
Book a Section 24 reviewWho pays for it
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.
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.
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.
The 20 to 25 point gap, unchanged in April 2027
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.
Taxable profit larger than the cash you bank
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%.
Dragged into the 60% band and the child benefit charge
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.
Inside the restriction since the FHL regime ended
Out of scope
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.
Costs 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.
Your options
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.
Not sure which of the four applies to you?
Most landlords need two of them, not one, and the wrong order costs money. We model the options against your own figures and tell you which is worth doing.
April 2027
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.
2026/27
Higher-rate landlord, today
2027/28
New property rates, from 6 April 2027
On a £20,000 interest bill the higher reducer is worth £400. 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, April 2027 costs you money.
Note: Example figures displayed
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, over £30,000 from April 2027 and over £20,000 from April 2028, 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.
The engagement
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.
What the review gives you
- 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.
Testimonials
Landlords who have had this modelled
Anonymised feedback from landlords and investors we have worked with on exactly these questions.
“They modelled our Section 24 position properly for the first time and showed us exactly where incorporation did and did not make sense. No hard sell, just the numbers.”
“We were weeks from missing the 60-day capital gains deadline on a sale. They turned the computation around and filed on time. Worth the fee on that alone.”
“Getting ready for Making Tax Digital felt overwhelming. They set up the software, mapped every property, and now the quarterly filing just happens.”
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Find out what Section 24 is costing you
Tell us what you own, how it is geared and whose name it is in. We will quantify the restriction on your portfolio and price the alternatives against it.
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