How Section 24 mortgage interest relief works for landlords

If you own buy-to-let property in your own name and have a mortgage on it, Section 24 is probably the single biggest reason your tax bill feels higher than your accountant predicted a decade ago. It changed how landlords get tax relief on mortgage interest, and for many higher-rate taxpayers it quietly turned a profitable portfolio into a marginal one. This guide explains the mechanism in plain terms, shows you exactly why it stings, and walks through a worked example with real numbers.

What Section 24 actually is

"Section 24" refers to Section 24 of the Finance (No. 2) Act 2015. It restricts the way individual landlords can deduct finance costs — most commonly buy-to-let mortgage interest, but also interest on loans to buy furnishings and certain mortgage arrangement fees — when working out their taxable rental profit.

Before the change, mortgage interest was a normal allowable expense. You deducted it from your rental income alongside repairs, letting agent fees and insurance, and you paid tax on what was left. Relief was effectively given at your highest rate of tax: a 40% taxpayer saved 40p of tax for every £1 of interest.

Section 24 removed that deduction entirely. Instead, you now declare your rental profit without deducting finance costs, and then receive a separate tax reducer — a credit worth 20% of your finance costs — applied after your tax has been calculated. The rules were phased in from the 2017/18 tax year and have been fully in force since 2020/21, so for several years now landlords have felt the complete effect.

Who it applies to — and who escapes it

Section 24 applies to:

• Individual landlords letting residential property in their own name (including jointly held property and partnerships).

It does not apply to:

• Companies. If your property is held in a limited company, mortgage interest remains a fully deductible business expense against corporation tax. This is the single biggest reason landlords have considered incorporating — though incorporation brings its own costs (potential capital gains tax and stamp duty land tax on transfer, higher mortgage rates, accountancy fees), so it is rarely a simple win.
• Furnished holiday lettings (FHLs) — though note the FHL regime was abolished from April 2025, so for 2025/26 onwards former FHLs fall under the standard property rules and Section 24 applies to them too.
• Commercial property let by an individual — finance costs on genuinely commercial lettings are not caught by the residential restriction.

The 20% tax credit mechanism, step by step

Under the current rules, your Self Assessment calculation runs like this:

1. Add up all your rental income.
2. Deduct all allowable expenses except finance costs (so repairs, insurance, agent fees, ground rent, etc. — but not mortgage interest).
3. The result is your taxable property profit. This figure is added to your other income (salary, dividends, pensions) to determine your total taxable income.
4. Your income tax is calculated on that total.
5. You then get a tax reducer equal to 20% of your finance costs, which is subtracted from the tax due.

The credit is capped. It is 20% of the lowest of three figures: your total finance costs for the year, your property profits for the year, and your "adjusted total income" (income above the personal allowance). Any finance costs you can't use this year because of the cap can be carried forward to future years.

Why it hurts higher-rate taxpayers specifically

The arithmetic is the whole story. A basic-rate (20%) taxpayer gets relief at 20% under the old system and a 20% credit under the new one — broadly no change. But a higher-rate (40%) or additional-rate (45%) taxpayer used to get relief at 40% or 45% and now gets a credit worth only 20%. That gap is the loss.

There is a second, sneakier effect. Because your mortgage interest is no longer deducted before arriving at your taxable income, your total taxable income figure is inflated by the full rent. That higher headline figure can:

• Push you from the basic-rate band into the higher-rate band even if your "real" economic profit is modest. A landlord who is a basic-rate taxpayer on paper can be tipped over the £50,270 higher-rate threshold by gross rents that are mostly swallowed by interest.
• Start eroding the personal allowance once total income exceeds £100,000 (it tapers away by £1 for every £2 above £100,000).
• Trigger or increase the High Income Child Benefit Charge, which now begins at £60,000 of adjusted net income.
• Reduce other allowances and reliefs that are means-tested against total income.

So Section 24 can cost you twice: once by capping relief at 20%, and again by dragging your headline income up into territory where other thresholds bite. The most painful cases are highly geared portfolios — high rent, high interest, thin real profit — owned by someone who already has a decent salary.

A worked example

Meet a landlord with a single buy-to-let. She has a £45,000 salary, so before any rental income she is a basic-rate taxpayer. The property generates:

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

Her real economic profit is £18,000 − £9,000 − £3,000 = £6,000. Let's compare the two regimes (using a £50,270 higher-rate threshold and a £12,570 personal allowance for illustration).

Step	Old rules (pre-2017)	Section 24 (current)
Rental income	£18,000	£18,000
Less mortgage interest	(£9,000)	not deducted here
Less other expenses	(£3,000)	(£3,000)
Taxable property profit	£6,000	£15,000
Salary	£45,000	£45,000
Total income	£51,000	£60,000

Under the old rules: her taxable property profit of £6,000 sits on top of her £45,000 salary. Of that £6,000, the slice up to £50,270 (£5,270) is taxed at 20% and the remainder (£730) at 40%. Tax on the rental profit is roughly £1,054 + £292 = £1,346.

Under Section 24: the full £18,000 rent (less only the £3,000 of non-finance expenses) gives a taxable property profit of £15,000. Stacked on her salary, most of this now falls in the higher-rate band. The income tax on that £15,000 of property profit is approximately £8,730 × 40% + (the portion below the threshold) — working it through, tax on the property profit is around £5,346 before the credit.

She then claims the tax reducer: 20% × £9,000 finance costs = £1,800. So her net tax on the rental activity is roughly £5,346 − £1,800 = £3,546.

The comparison: about £1,346 of tax under the old rules versus about £3,546 under Section 24 on the same £6,000 of real profit — an extra ~£2,200 of tax, leaving her with under half of her economic profit after tax. The numbers above are rounded for illustration and depend on the exact bands and order of taxation, but the direction and scale are representative of what higher-rate landlords actually experience.

The cruel edge case: if a heavily mortgaged property breaks even or makes a small economic loss, you can still owe income tax on it, because the "profit" HMRC taxes is calculated before interest. Landlords have been caught paying tax on properties that lost money in cash terms.

What you can do about it

There is no magic deduction that brings Section 24 relief back to 40%, but landlords commonly consider:

• Reducing gearing — overpaying or clearing mortgages cuts the disallowed interest, though it ties up capital.
• Incorporation — moving property into a limited company restores full interest deductibility, but weigh the CGT, SDLT, mortgage-rate and admin costs carefully, and take advice first.
• Spousal ownership planning — shifting income towards a lower-earning spouse (via a declaration of trust and Form 17 where appropriate) can keep more profit in the basic-rate band.
• Maximising every other allowable expense — Section 24 only restricts finance costs; repairs, replacement of domestic items relief, and the £1,000 property allowance (where it applies) are all unaffected.

Frequently asked questions

Does Section 24 apply if I have no mortgage?

No. If you have no finance costs, there is nothing to restrict — your profit is simply income less expenses as before.

Is the 20% credit a refund?

No. It reduces the tax you owe, but it can't create a repayment on its own and is capped at the lower of your finance costs, property profits, or adjusted total income. Unused amounts carry forward.

Do I still need to record mortgage interest if I can't deduct it?

Yes — absolutely. You report finance costs separately on your Self Assessment so HMRC can calculate the 20% reducer. Keeping a clean record of interest paid each quarter matters more than ever, especially as Making Tax Digital for Income Tax brings in quarterly reporting for many landlords.

Does it affect capital gains tax when I sell?

No. Section 24 only touches income tax on rental profits. CGT on disposal is calculated separately.

This article is general information for UK landlords and reflects our understanding of the rules at the time of writing; tax bands, thresholds and reliefs change. It is not professional, financial or legal advice — please check current HMRC guidance at gov.uk and consult a qualified accountant or tax adviser about your own circumstances.