Tax & Accountancy
Section 24 tax explained: a complete landlord guide
Section 24 of the Finance (No. 2) Act 2015 is one of the most significant tax changes ever made to the private rented sector in England. It removed the ability for individual landlords to deduct mortgage interest and other finance costs from their rental income before calculating tax, replacing 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 their tax bills, in some cases pushing landlords into losses even when their properties are cash-flow positive. This guide explains exactly how Section 24 tax works, who it affects, how to calculate the impact, and what options exist to mitigate it.
What is Section 24 tax?
Section 24 – sometimes called the ‘landlord tax’ or the finance cost restriction – restricts the amount of mortgage interest relief that individual landlords can offset against their rental income. Before Section 24 was phased in between 2017 and 2020, landlords could deduct mortgage interest payments in full from their rental income, paying income 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 purchase or improve a rental property. They do not include the capital repayment portion of a mortgage.
Section 24 applies to individual landlords and partnerships. It does not apply to companies. This distinction has driven a significant number of landlords to consider incorporation, a topic covered in more detail below.
How the old mortgage interest relief worked
Before Section 24, the tax 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 would pay tax only on the £8,000 profit. For a 40% taxpayer, that meant a tax bill of £3,200.
This system treated mortgage interest the same way any other business treats a finance cost: as a legitimate deductible expense. Section 24 departed from that principle entirely for individual landlords.
How Section 24 tax works now
Under the current rules, landlords must calculate their tax liability on their full rental income, not on their profit after mortgage interest. They then receive a tax credit of 20% of their finance costs, which is deducted from the resulting tax bill.
The practical effect is that higher-rate taxpayers effectively receive only 20% relief on their mortgage costs rather than 40% or 45%. For landlords who pay basic-rate income tax, the change is less severe, though the way taxable income is calculated can still push them into the higher-rate band.
Example: basic-rate taxpayer
A landlord earns £15,000 from their rental property and pays £8,000 in mortgage interest. They have no other income outside the personal allowance.
Taxable rental income: £15,000 (mortgage interest 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 – £1,600 = £1,400
Under the old rules, this landlord would have paid tax on £7,000 profit at 20%: £1,400. In this case the result is the same, because the credit fully compensates a basic-rate taxpayer as long as the credit does not exceed their tax liability.
Example: higher-rate taxpayer
A landlord pays 40% income tax. They earn £20,000 in rent and pay £12,000 in mortgage interest. They also earn £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 – £2,400 = £5,600
Under the old rules, taxable profit was £8,000 (£20,000 minus £12,000) and tax at 40% was £3,200. Section 24 has increased this landlord’s tax bill by £2,400 per year, simply by changing the way relief is given.
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 out one or more residential properties.
Landlords who own property in their personal name rather than through a company.
Landlords who own property in partnership with others (including spouses).
It does not apply to furnished holiday lets (though the FHL regime was itself abolished from April 2025, so landlords who previously benefited from FHL tax treatment should take specific advice on their position).
Commercial landlords, limited companies, and corporate landlords are not subject to Section 24. They continue to deduct finance costs as a business expense in the conventional way.
For a broader picture of how rental income is taxed and what tax 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 inadvertently push a landlord into the higher-rate tax band, even if their actual profit does not warrant it.
Because rental income is now assessed gross (before mortgage interest deduction), 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 that their total assessed income of £52,000 crosses the higher-rate threshold (£50,270 in 2025/26), meaning some of their rental income is taxed at 40% rather than 20%, while the relief they receive is still calculated 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 to opt out of Section 24 as an individual landlord. However, there are a number of legitimate strategies that can reduce its impact.
1. Incorporate into a limited company
The most significant structural response to Section 24 is to hold rental properties through a limited company rather than personally. Companies are not subject to Section 24: they 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 properties from personal ownership to a company generally triggers a Stamp Duty Land Tax (SDLT) charge and, unless incorporation relief applies, a Capital Gains Tax (CGT) liability on any gain since purchase. For landlords just starting out, however, building a portfolio inside a company from the outset can be significantly more tax-efficient.
There are also practical downsides to companies: mortgage rates on company buy-to-let products tend to be higher than personal rates, and extracting profits as a director means paying further tax on dividends or salary. 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). If one owner pays a lower rate of income tax, restructuring ownership to increase their share can reduce the overall Section 24 impact. This requires a deed of trust and a Form 17 declaration to HMRC. 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 these deductions – repairs and maintenance, letting agent fees, landlord insurance, accountancy fees, and so on – reduces the taxable rental income before the Section 24 calculation applies.
4. Review your financing structure
If you have properties with relatively low mortgage balances, the Section 24 impact may be modest. Landlords with high loan-to-value mortgages and high interest rates feel the restriction most acutely. Reviewing whether to overpay mortgages, switch to lower-rate products, or reduce leverage across the portfolio is worth considering in the context of your overall tax position.
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 other measures.
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 its taxable profit by deducting all allowable expenses from rental income. Mortgage interest is an allowable expense for a company, just as it is for any other business. The company then pays corporation tax on the resulting profit, which in 2025/26 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. However, the full analysis must include the SDLT and CGT costs of transferring existing properties, the higher mortgage rates typically available to companies, and the ongoing compliance costs of running a limited company. The maths varies significantly depending on individual circumstances.
Section 24 and self-assessment
Landlords who earn rental income must complete a self-assessment tax return each year. The Section 24 restriction is handled automatically through the property income pages of the return: you report your gross rental income, deduct allowable expenses other than finance costs, and then record your finance costs separately. HMRC’s system calculates the 20% tax credit and applies it to your final liability.
It is important not to conflate the finance cost restriction with the overall calculation of rental profit. Your profit and loss account for the property can still show mortgage interest as a cost, but for tax purposes it is treated differently to other expenses.
Unused finance cost relief, which occurs when the 20% credit exceeds your tax liability for the year, can be carried forward to future years. This can be relevant for landlords who make a loss in a particular year.
Frequently asked questions about Section 24
Does Section 24 apply to remortgage costs?
Yes. Remortgage arrangement fees and interest on the new mortgage are finance costs for the purposes of Section 24. If you have rolled arrangement fees into the loan balance, the interest on the fee element is also a finance cost.
Does Section 24 apply if I make a loss?
If your property makes a loss after other allowable expenses (before the Section 24 restriction is applied), you can carry that loss forward to offset against future rental income. The finance cost credit is available only if there is a tax liability to offset it against; 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?
There have been repeated calls from landlord groups for Section 24 to be reversed or reformed, but successive governments have declined to do so. As of 2026, the restriction remains fully in force with no announced plans to change it.
What Section 24 means for your rental business in practice
Section 24 has fundamentally changed the economics of being a higher-rate taxpaying landlord in the UK. The days of deducting mortgage interest in full are gone for individuals. What remains is a 20% tax 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 taking a clear-eyed look at your portfolio’s overall tax position, ideally with the help of an accountant who specialises in property. Whether that leads to incorporation, a change in ownership structure, a focus on reducing leverage, or simply maximising every other allowable expense, the right answer depends on your specific numbers and long-term plans.
For a broader overview of landlord tax and allowable costs, see our articles on how rental income is taxed in the UK and tax tips for landlords on what you can and can’t claim.
This article is intended for general informational purposes only and does not constitute legal, financial, or professional advice. Landlord and tenant law is subject to change, and the information in this article reflects the position at the time of writing. You should always seek independent legal or professional advice before taking any action in relation to your property or tenancy.
Author
August Team
The August editorial team lives and breathes rental property. They work closely with a panel of experienced landlords and industry partners across the UK, turning real-world portfolio and tenancy experience into clear, practical guidance for small landlords.
