Section 24: mortgage interest restriction

What Section 24 changed

Before 2017, individual landlords could deduct mortgage interest from rental income before calculating tax. This meant a higher-rate taxpayer effectively got 40% relief on every pound of interest.

Section 24, fully phased in by 2020/21, replaced that with a flat 20% basic-rate tax credit. The mechanics matter: the interest no longer reduces taxable rental profit, so a landlord can be taxed on profit they have not actually made in cash terms.

How the tax credit works

1. Calculate rental profit ignoring mortgage interest
2. Add this profit to your other income to find your tax bill
3. Calculate 20% of mortgage interest paid in the year
4. Deduct that 20% from your tax bill (it cannot create a refund)

Why higher-rate taxpayers feel it most

A basic-rate taxpayer is broadly unaffected — they would have got 20% relief either way. A higher-rate taxpayer used to get 40% relief and now gets 20%, halving the effective deduction. An additional-rate taxpayer used to get 45% and now gets 20%.

Worse, because mortgage interest no longer reduces profit, it can push a landlord's "profit" higher than their cash position. This can also tip a basic-rate taxpayer into the higher-rate band, costing more tax on the rest of their income.

Who is affected

• Affected: individuals letting residential property in their personal name
• Not affected: limited companies, furnished holiday lets, commercial property landlords

What can you do?

• Pay down mortgage capital to reduce interest exposure
• Consider a limited company structure for new acquisitions (full interest deductibility, but adds Corporation Tax and admin)
• Keep a close eye on your marginal tax band — Section 24 makes the planning more sensitive than before

Transferring an existing personally-owned property into a company is rarely simple — it can trigger Stamp Duty Land Tax and a Capital Gains Tax bill on the transfer. Get advice before doing this.