Section 24

Section 24 of the Finance (No. 2) Act 2015 is the provision that restricts the tax relief individual residential landlords can claim on mortgage interest and other finance costs. Announced by Chancellor George Osborne in the Summer Budget of July 2015 and phased in between April 2017 and April 2020, it replaced the previous full deduction of mortgage interest as a business expense with a flat 20% basic-rate tax credit, regardless of the landlord's actual income tax band. It is fully in force for the 2025/26 tax year and all subsequent years.

Section 24 is sometimes called the "landlord tax" or "tenant tax." It applies only to individual landlords and partnerships of individuals holding residential property in their own names. It does not apply to limited companies, which can still deduct mortgage interest as a business expense before paying corporation tax.

How mortgage interest worked before Section 24

Before Section 24, individual landlords could deduct their full mortgage interest cost from rental income before calculating taxable profit, the same treatment available to any other business with finance costs. A landlord with £20,000 in rental income and £12,000 in mortgage interest would pay income tax on a profit of £8,000.

How Section 24 changed the calculation

Under Section 24, mortgage interest is no longer deducted from rental income. Instead, the landlord pays income tax on the full £20,000 of rental income (less other allowable expenses such as repairs, insurance, and letting agent fees), and then receives a tax credit equal to 20% of the mortgage interest paid. The credit reduces the final tax bill but does not reduce the taxable income figure.

Using the same example, tax is calculated on £20,000 (not £8,000), and a 20% credit of £2,400 is applied afterwards. For a basic-rate taxpayer paying 20% income tax, the net effect is broadly neutral, the credit replaces the relief they previously received. For a higher-rate taxpayer paying 40%, the effect is material: they previously received £4,800 of relief (40% of £12,000); they now receive only £2,400 (20% of £12,000). The £2,400 annual difference is real additional tax on the same economic activity.

HMRC's Property Income Manual sets out the rules for allowable deductions and finance costs under the current regime.

The tax band trap

Section 24 has a secondary effect that affects many landlords who consider themselves to be basic-rate taxpayers, it inflates apparent taxable income. Because mortgage interest is no longer deducted before computing profit, the rental income figure that feeds into the landlord's total taxable income is higher than their real cash position. A landlord with a £40,000 salary and £15,000 of rental profit (after all expenses except mortgage interest) may find that their taxable income is assessed at £55,000, pushing them into the higher-rate band, even though their real-world net position is lower. This can reduce or eliminate eligibility for the personal allowance taper, child benefit, the personal savings allowance, and other income-tested reliefs.

From working with self-managing landlords across the UK, August finds this band-trap effect is the most common source of surprise at self-assessment time, particularly for landlords whose rental portfolios have grown alongside rising property values and who have never previously been higher-rate taxpayers. Where one spouse is a basic-rate taxpayer, couples can soften this by holding the property as tenants in common in unequal shares and shifting more of the income to the lower-rate partner, recorded in a declaration of trust and a Form 17.

Who Section 24 does and does not affect

Section 24 applies to individual landlords (including those jointly letting property) holding residential property in their personal names and using mortgage finance. It does not apply to:

Limited companies. A company owning buy-to-let property continues to deduct mortgage interest as a business expense before corporation tax. This is the primary reason the number of limited company landlord structures has grown sharply since 2017. However, incorporation triggers capital gains tax and Stamp Duty Land Tax on property transfer, and these property incorporation tax costs make it a significant decision requiring specialist advice, see our guide to forming a limited company for when it makes sense.

Commercial property landlords. Section 24 is specific to residential lettings.

Furnished holiday let landlords until April 2025. FHLs previously fell outside Section 24, but the abolition of the FHL tax regime from 6 April 2025 has brought qualifying holiday let properties into the same regime as residential buy-to-let. Landlords who relied on the FHL exemption need to reassess their position.

Basic-rate taxpayers whose total income stays below the higher-rate threshold. Where the full rental income (including the inflated Section 24 figure) does not push total income above £50,270, the practical impact is limited, though careful monitoring is needed as income grows.

The 2027 property income rate change

From 6 April 2027, the government is introducing separate income tax rates for property income, increasing the basic rate for property income from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%. The Section 24 tax credit will also be recalculated at the new property basic rate of 22% rather than the current 20%. This means the credit increases very slightly for mortgaged landlords, partially offsetting the rate rise, but the net effect is still a higher overall tax bill on rental income. For landlords already operating under Section 24 constraints, the April 2027 changes compound an already difficult tax position.

How it connects to mortgage affordability

Section 24 is directly connected to buy-to-let mortgage affordability through the interest coverage ratio. Because higher-rate taxpayers receive less effective relief on each pound of mortgage interest, lenders apply a stricter 145% ICR threshold to higher-rate taxpayers borrowing in personal name (compared to 125% for basic-rate taxpayers and limited company borrowers). This makes it harder for higher-rate taxpayers to borrow what they want on new purchases, and harder to remortgage at higher loan-to-value ratios on existing properties.

Our full Section 24 guide for landlords covers worked examples, before/after tax comparisons, and the incorporation decision in depth.

Frequently asked questions

Does Section 24 mean I pay tax on a loss?

In heavily geared portfolios, particularly at higher interest rates, yes. A landlord whose mortgage interest exceeds their rental profit can find themselves paying income tax on a paper profit that does not exist in cash. This happens because mortgage interest is no longer subtracted before calculating taxable income: the tax credit partially mitigates the cost but does not eliminate it, and for a higher-rate taxpayer the remaining gap is a real tax bill on a real cash loss.

Can I still deduct other property expenses?

Yes. Section 24 restricts only mortgage interest and other finance costs (arrangement fees, loan interest for furnishings, etc.). All other allowable property expenses, letting agent fees, repairs and maintenance, insurance, accountancy, ground rent, service charges, remain fully deductible against rental income in the usual way.

Will Section 24 be reversed?

The current government has confirmed no plans to reverse Section 24. Multiple petitions, including a high-profile legal challenge in 2016, have not resulted in any change. The restriction is now embedded in the property tax landscape and is unlikely to change, the April 2027 property income rate changes add further tax complexity rather than reducing it. Landlords are advised to plan on the basis that Section 24 is permanent.