Section 24 tax explained: a guide for landlords | August

Section 24 tax explained: a complete landlord guide

Last reviewed: June 2026.

Section 24 of the Finance (No. 2) Act 2015 is one of the most significant tax changes ever made to the private rented sector. It removed the ability for individual landlords to deduct mortgage interest and other finance costs from rental income before calculating tax, and replaced it with a basic-rate tax credit worth 20% of finance costs. For higher-rate and additional-rate taxpayers the result has been a substantial increase in tax bills, in some cases pushing landlords into a loss even when a property is cash-flow positive. This guide explains how Section 24 works, who it affects, how to calculate the impact, and what options exist to reduce it.

What is Section 24 tax?

Section 24, sometimes called the landlord tax or the finance cost restriction, limits the mortgage interest relief that individual landlords can set against rental income. The rule sits in section 24 of the Finance (No. 2) Act 2015. Before it was phased in between 2017 and 2020, landlords could deduct mortgage interest in full from rental income and pay tax only on the remaining profit. That relief no longer exists for individuals; in its place, landlords receive a tax credit equal to 20% of their finance costs.

Finance costs include mortgage interest, loan arrangement fees, and interest on loans taken out to buy or improve a rental property. They do not include the capital repayment element of a mortgage. Section 24 applies to individual landlords and partnerships; it does not apply to companies, a distinction that has driven many landlords to consider incorporation, covered below. For a fuller definition of the rule and its terms, see our dictionary entry on Section 24.

How the old mortgage interest relief worked

Before Section 24, the treatment of mortgage interest was straightforward. A landlord would calculate rental income, deduct all allowable costs including mortgage interest, and pay income tax on the resulting profit. A higher-rate taxpayer receiving £20,000 in rent and paying £12,000 in mortgage interest paid tax only on the £8,000 profit, which at 40% meant a bill of £3,200. This treated mortgage interest the way any other business treats a finance cost: as a deductible expense. Section 24 departed from that principle entirely for individuals.

How Section 24 tax works now

Under the current rules, landlords calculate their income tax on full rental income, before deducting mortgage interest, and then receive a tax credit set against the resulting bill. The practical effect is that higher-rate taxpayers receive only 20% relief on their mortgage costs rather than 40% or 45%. For basic-rate taxpayers the change is less severe, though the way taxable income is calculated can still push them into the higher-rate band.

The credit is not always a flat 20% of all finance costs. According to HMRC's guidance on how the relief is worked out, the reduction is 20% of the lowest of three figures: your finance costs for the year plus any brought forward, your property business profits, and your adjusted total income that exceeds your personal allowance. For most landlords the lowest figure is finance costs, so the credit is simply 20% of mortgage interest. Where profits or income are lower, the credit is capped at 20% of that smaller figure, and the unused portion of the finance costs is carried forward to a future year. The credit cannot create a tax refund.

Example: basic-rate taxpayer

A landlord earns £15,000 from a rental property and pays £8,000 in mortgage interest, with no other income above the personal allowance.

• Taxable rental income: £15,000, because mortgage interest is no longer deducted

• Income tax on £15,000 at 20%: £3,000

• 20% tax credit on £8,000 finance costs: £1,600

• Net tax liability: £3,000 minus £1,600 = £1,400

Under the old rules this landlord would have paid tax on £7,000 of profit at 20%, which is also £1,400. The result is the same here, because the credit fully compensates a basic-rate taxpayer as long as it does not exceed their tax liability.

Example: higher-rate taxpayer

A landlord pays 40% income tax, earns £20,000 in rent, pays £12,000 in mortgage interest, and also earns £60,000 from employment.

• Taxable rental income added to other income: £20,000

• Income tax on rental income at 40%: £8,000

• 20% tax credit on £12,000 finance costs: £2,400

• Net tax on rental income: £8,000 minus £2,400 = £5,600

Under the old rules, taxable profit was £8,000, being £20,000 minus £12,000, and tax at 40% was £3,200. Section 24 has increased this landlord's bill by £2,400 a year, purely by changing the way relief is given. To model your own position, our rental income tax calculator applies the Section 24 credit correctly: enter your rental income, finance costs and other income to see your actual liability rather than a figure that treats interest as a deductible expense.

Who is affected by Section 24?

Section 24 applies to individuals who let residential property in the UK and who have finance costs associated with that letting. This includes private landlords renting one or more residential properties, landlords who own property in their personal name rather than through a company, and landlords who own property in partnership with others, including spouses.

It does not apply to furnished holiday lets, although the furnished holiday let regime was itself abolished from April 2025, so landlords who previously benefited from that treatment should take specific advice on their position. Commercial landlords, limited companies and corporate landlords are not subject to Section 24 and continue to deduct finance costs as a business expense in the conventional way. For a broader picture of how rental income is taxed and which bands apply, see our guide to how rental income is taxed in the UK.

Section 24 can push basic-rate taxpayers into the higher band

One of the most overlooked effects of Section 24 is that it can push a landlord into the higher-rate band even where actual profit does not warrant it. Because rental income is assessed gross, before mortgage interest, it is added to other income at a higher figure. A landlord with employment income of £40,000 and rental income of £12,000 may find their total assessed income of £52,000 crosses the higher-rate threshold, which is £50,270 in the 2026/27 tax year and frozen at that level, meaning some rental income is taxed at 40% while relief is still given at only 20%. This is not a rounding error; it is a structural feature of Section 24 that affects many landlords who consider themselves basic-rate taxpayers.

How to reduce the impact of Section 24

There is no way for an individual landlord to opt out of Section 24, but several legitimate strategies can reduce its impact.

1. Incorporate into a limited company

The most significant structural response is to hold rental property through a limited company rather than personally. Companies are not subject to Section 24 and pay corporation tax, currently 19% to 25% depending on profits, on their profits after all allowable deductions including mortgage interest. Incorporation is not straightforward for existing landlords: moving property from personal ownership to a company generally triggers a Stamp Duty Land Tax charge and, unless incorporation relief applies, a Capital Gains Tax liability on any gain since purchase. For landlords starting out, building a portfolio inside a company from the outset can be more tax-efficient. There are practical downsides too: company buy-to-let mortgage rates tend to be higher, and extracting profit as dividends or salary means further tax. Advice from an accountant who specialises in property is essential before making this decision.

2. Transfer a share of the property to a lower-rate spouse or partner

If a property is jointly owned, rental income is split between owners in proportion to their ownership shares by default unless a different split is declared. Where one owner pays a lower rate of income tax, increasing their share can reduce the overall Section 24 impact. This requires a deed of trust and a Form 17 declaration to HMRC, and both parties must be legal owners, not just beneficial owners.

3. Use all available allowable expenses

While mortgage interest is no longer fully deductible, other allowable expenses for landlords remain fully deductible against rental income. Maximising deductions such as repairs and maintenance, letting agent fees, landlord insurance and accountancy fees reduces taxable rental income before the Section 24 calculation applies. It is also worth confirming that any software you use handles the restriction correctly. General accounting platforms often treat mortgage interest as a straightforward deductible expense, which produces an incorrect figure; for a full assessment of which tools apply the 20% credit accurately, see our guide to the best landlord tax software for UK landlords.

4. Review your financing structure

Landlords with high loan-to-value mortgages and high interest rates feel the restriction most acutely, while those with low mortgage balances may find the impact modest. Reviewing whether to overpay, switch to lower-rate products or reduce leverage across the portfolio is worth considering in the context of your overall tax position. If that review leads you to consider selling, see our guide on what to consider before selling a buy-to-let property.

5. Consider pension contributions

Making pension contributions can reduce your adjusted net income and therefore reduce the amount of rental income that falls into the higher-rate band. This is not a property-specific strategy, but it can be a useful tool alongside the others.

Section 24 and limited companies: the key difference

It is worth being precise about how companies are treated. A limited company that owns residential property calculates taxable profit by deducting all allowable expenses, including mortgage interest, from rental income, and then pays corporation tax on the result, which in 2026/27 is 19% for profits up to £50,000 and 25% for profits over £250,000, with marginal relief in between. This makes companies attractive for higher-rate taxpayers with significant finance costs. The full analysis must, however, include the Stamp Duty and Capital Gains costs of transferring existing property, the higher mortgage rates typically available to companies, and the ongoing compliance costs of running a company. The arithmetic varies significantly with individual circumstances.

Section 24 and self-assessment

Landlords who earn rental income complete a self-assessment return each year, and the Section 24 restriction is handled through the UK property pages. You report gross rental income, deduct allowable expenses other than finance costs, and record your residential finance costs separately in the dedicated finance costs box; HMRC then calculates the 20% credit and applies it to your final liability. Do not conflate the finance cost restriction with the calculation of rental profit: your profit and loss account can still show mortgage interest as a cost, but for tax it is treated differently from other expenses. Unused finance cost relief, which arises when the credit exceeds your liability for the year, is carried forward.

From building August alongside thousands of self-managing landlords, we have found the Section 24 calculation goes wrong most often not at the point of submission but months earlier, when interest is logged in the same place as deductible expenses and the distinction is lost. Managing the restriction well means keeping precise income and expense records throughout the year. August is Making Tax Digital software for landlords that records mortgage interest separately from deductible costs and stores every figure in HMRC-aligned categories, so your records are accurate and submission-ready.

Frequently asked questions

Does Section 24 apply to remortgage costs?

Yes. Remortgage arrangement fees and interest on the new mortgage are finance costs for Section 24. If you have rolled arrangement fees into the loan balance, the interest on the fee element is also a finance cost.

How is the 20% credit actually calculated?

The credit is 20% of the lowest of three figures: your finance costs for the year plus any brought forward, your property business profits, and your adjusted total income above your personal allowance. For most landlords the lowest figure is finance costs, so the credit is 20% of mortgage interest. Where it is capped by the lower of profits or income, the unused finance costs carry forward, and the credit can never produce a tax refund.

Does Section 24 apply if I make a loss?

If your property makes a loss after other allowable expenses, before the Section 24 restriction, you can carry that loss forward against future rental income. The finance cost credit is available only where there is a tax liability to set it against, and any unused credit is also carried forward.

Does Section 24 apply to commercial property?

No. Section 24 applies only to residential property. Landlords with commercial property can continue to deduct finance costs in full in the conventional way.

Can I claim the full mortgage payment, not just the interest?

No. Only the interest element of a mortgage payment is a finance cost for tax purposes. Capital repayments reduce your outstanding loan but do not reduce your income tax liability.

Will Section 24 ever be reversed?

Landlord groups have repeatedly called for Section 24 to be reversed or reformed, but successive governments have declined, as the House of Commons Library briefing on the measure records. As of 2026 the restriction remains fully in force with no announced plans to remove it. Separately, changes to the income tax rates that apply to property income have been announced for April 2027, which would alter how Section 24 interacts with your overall bill, so confirm the current position with a tax adviser when planning ahead.

What Section 24 means for your rental business in practice

Section 24 has fundamentally changed the economics of being a higher-rate taxpaying landlord. The days of deducting mortgage interest in full are gone for individuals; what remains is a 20% credit that compensates basic-rate taxpayers reasonably well but leaves higher-rate and additional-rate payers significantly worse off. Understanding the restriction is the first step. The second is a clear-eyed look at your portfolio's overall tax position, ideally with an accountant who specialises in property. Whether that leads to incorporation, a change in ownership structure, lower leverage or simply maximising every other allowable expense, the right answer depends on your numbers and long-term plans. If you want your records accurate and Section 24 handled correctly all year rather than reconstructed each January, you can start with August for free for up to two properties.

This article is intended for general informational purposes only and does not constitute legal, financial or tax advice. Tax rules change and individual circumstances vary, and the information reflects the position at the time of writing. Always seek independent professional advice before acting in relation to your tax affairs.