Section 24 explained: how the mortgage interest restriction works and what UK landlords can do about it
Section 24 restricts mortgage interest relief to a 20% basic-rate tax credit for individual UK landlords. Worked examples showing how break-even portfolios now produce tax bills, and four legitimate ways to manage the impact.
In one sentence
Section 24 of the Finance (No. 2) Act 2015 restricts UK individual landlords from deducting mortgage interest and other finance costs as a normal business expense, replacing the deduction with a flat 20% basic-rate tax credit on those costs, which often produces a higher tax bill than the actual rental profit suggests.
Quick answer
- Section 24 applies to UK individuals letting residential property since April 2020 (fully phased in)
- Mortgage interest is no longer deducted from rental profit; instead, you get a 20% tax credit on those costs
- Higher-rate taxpayers now effectively pay tax at 20% on their mortgage interest
- Can push borderline landlords into higher tax bands, the £100k personal allowance trap, or the High Income Child Benefit Charge
- Companies are not affected, mortgage interest is fully deductible in a limited company structure
Steps
- 1Calculate gross rental income for the year
- 2Deduct allowable property expenses (but NOT mortgage interest)
- 3The result is your taxable rental profit, added to your other income
- 4Apply income tax at your marginal rate to the rental profit
- 5Separately, calculate 20% of your finance costs as a tax credit
- 6Subtract the 20% credit from your tax bill (cannot reduce other tax below zero)
Is mortgage interest tax deductible for landlords?
Not as an expense, if you are an individual letting residential property. Since April 2020 you cannot deduct mortgage interest from rental income. You get a tax credit instead, worth 20% of your finance costs. This is Section 24 of the Finance (No. 2) Act 2015.
Mortgage interest is still fully deductible if the property is owned by a limited company, and for commercial property. Mortgage payments that repay the loan itself (capital) have never been deductible.
| Who owns the property | Mortgage interest relief |
|---|---|
| Individual landlord, residential let | 20% tax credit on finance costs (no deduction) |
| Partnership of individuals, residential let | Each partner gets the 20% credit on their share |
| Limited company | Full deduction against profits |
| Commercial property (individual) | Full deduction |
| Holiday let (from April 2025) | Treated as a normal residential let, so the 20% credit applies |
| Your own home | No relief for mortgage interest |
What Section 24 actually does
Before April 2017, you deducted mortgage interest from rental income to arrive at taxable profit. Now the interest is left out of your expenses. Your rental profit is higher, and you claim a 20% basic-rate tax credit on your finance costs afterwards.
For a basic-rate taxpayer the cash effect is broadly neutral. For a higher-rate taxpayer the relief falls from 40% to 20%, and for an additional-rate taxpayer from 45% to 20%.
How Section 24 was phased in
| Tax year | Finance costs deducted from profit | Finance costs given 20% credit |
|---|---|---|
| 2016/17 | 100% | 0% |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 onwards | 0% | 100% |
The credit is limited to the lowest of your finance costs, your property profits, and your income above the Personal Allowance. Any finance costs you cannot use carry forward to later years.
What counts as finance costs
Mortgage interest, interest on loans used for the rental business, arrangement fees, and the finance element of leasing and hire purchase costs for items such as furniture. Repayments of the loan itself do not count.
Looking ahead: from 6 April 2027 property income will be taxed at its own, higher rates. GOV.UK published the policy paper in October 2026. Check how finance-cost relief interacts with those rates before you plan 2027/28.
Worked example: how a break-even portfolio now produces tax
Take a higher-rate landlord with one property:
- Gross rent: £18,000
- Mortgage interest: £12,000
- Other expenses (insurance, repairs, management fees): £3,000
- True cash profit: £3,000
Pre-Section 24 (before April 2017)
The old calculation:
- Rental profit = £18,000 − £12,000 − £3,000 = £3,000
- Tax at 40%: £1,200
- Cash left after tax: £1,800
Post-Section 24 (from April 2020)
- Taxable rental profit = £18,000 − £3,000 = £15,000 (mortgage interest excluded)
- Tax at 40%: £6,000
- Section 24 credit: 20% × £12,000 = £2,400
- Net tax: £6,000 − £2,400 = £3,600
- Cash left after tax: £3,000 − £3,600 = −£600
The landlord with £3,000 of actual cash profit now pays £3,600 in tax. They are £600 worse off than before they bought the property, despite the property generating positive cash flow on paper.
This is the structural problem that has driven so many landlords to either incorporate, sell, or restructure since 2017.
The threshold effects nobody warns you about
Beyond the direct tax impact, Section 24 inflates the 'profit' on your tax return. Even though your cash income is unchanged, the higher figure can push you across thresholds:
- Basic rate to higher rate. A landlord earning £45,000 of salary plus £8,000 of pre-Section 24 rental profit on a portfolio with £20,000 of mortgage interest now shows £45,000 of salary + £28,000 of property 'profit' (£73,000 in total) for tax purposes. They cross into the 40% bracket.
- £100,000 personal allowance taper. If you were sitting at £95,000 of total income before Section 24, you can find yourself at £115,000 after, with the personal allowance tapering away and an effective marginal rate around 60%. See our 40% tax bracket guide for the £100k mechanics.
- High Income Child Benefit Charge (HICBC). This kicks in at £60,000 of adjusted net income (raised from £50,000 in 2024/25). Inflated rental 'profit' can push you above £60,000 and start clawing back Child Benefit.
- Student loan repayments. Income-based, so the inflated profit figure can drive higher loan deductions.
These secondary effects are often larger than the headline Section 24 tax difference itself. A landlord who 'only' moves into the 40% bracket but also loses Child Benefit and starts repaying their student loan can see a far worse outcome than the simple mortgage-interest calculation suggests.
Who is affected (and who is not)
Section 24 applies to:
- UK-resident individuals letting residential property
- Partners in a partnership that lets residential property
- Trustees of certain non-discretionary trusts
It does not apply to:
- UK limited companies: mortgage interest is fully deductible against rental profit at Corporation Tax rates
- Commercial property, retains full deduction
- Furnished holiday lets previously did not apply, although the FHL regime itself was abolished in April 2025, so most former FHLs are now standard residential lets and are caught
The company exemption is the single most important planning consideration. Many portfolio landlords have moved (or are considering moving) their properties into a limited company structure specifically to recover full mortgage interest relief.
Four legitimate ways to manage the impact
1. Hold new properties in a limited company
A limited company structure deducts mortgage interest in full at the corporation tax line. So a 'break-even' portfolio in personal hands becomes a tax-paying-on-cash-profits portfolio in a company. The trade-offs:
- Corporation tax on profits (19% to 25%)
- Personal tax (dividends or salary) to get cash out
- Higher SDLT rates on company purchases (additional dwellings surcharge from £0)
- Annual accounts, corporation tax returns, Companies House filings
- BTL mortgage rates are typically 0.25 to 0.50 percentage points higher in a company
For new purchases, the company route generally beats the personal route once you are a higher-rate taxpayer and the portfolio is large enough to justify the extra admin (usually 3+ properties or £500,000+ of value).
2. Transfer existing properties to a company (with caution)
Moving an existing personally-owned portfolio into a company is technically a sale. It triggers:
- Capital Gains Tax on the latent gain in each property
- SDLT on the company side (at additional dwellings rates)
- Mortgage redemption and reissue costs
Incorporation relief can defer the CGT element, but only where you can demonstrate the portfolio is a 'business' rather than passive investment. The case law (Ramsay v HMRC, and others) sets a high bar: typically you need 20+ hours a week of genuine portfolio management. We model this carefully before any transfer to confirm it works.
3. Pension contributions to claw back the band-shift effect
Personal pension contributions extend the basic rate band by the gross contribution and reduce adjusted net income for the £100,000 taper. A £15,000 net personal pension payment (£18,750 gross after basic-rate relief at source) pulls a landlord at £115,000 of taxable income back down to £96,250 of adjusted net income, restoring most of the personal allowance and unwinding the worst of Section 24's secondary effects.
4. Shift ownership between spouses
If you are married or in a civil partnership and your spouse has spare basic-rate band, a Declaration of Trust can shift rental income (and the related finance costs) toward whichever spouse is in the lower tax band. The Form 17 election with HMRC formalises this for tax purposes. Particularly useful where one spouse is a non-earner or a basic-rate taxpayer.
How to model your own Section 24 position
A quick desk calculation:
- Add up your annual rental income
- Subtract allowable expenses (everything except mortgage interest)
- Add the result to your other taxable income
- Calculate income tax on the total
- Subtract 20% of your mortgage interest as a credit
- Compare to your actual cash position to see whether you are still cash-positive after tax
If the answer is negative or barely positive, it is worth modelling a company structure for new acquisitions and checking the threshold effects on your personal position. Our salary + dividend calculator and our property tax modelling can do this side-by-side.
Official source
HMRC Property Income Manual: interest and finance-cost restrictions
Section 24 affecting your portfolio?
We specialise in UK landlord tax. A 30-minute call with RR Accountants is enough to model your Section 24 position, compare personal vs limited company outcomes, and identify the legitimate planning moves available for your portfolio. Just the numbers, with no sales pitch.
Book a call →Frequently asked questions
What is Section 24 in plain English?
Section 24 is the law that stopped UK individual landlords from deducting mortgage interest as a normal rental expense. Before April 2017 you could subtract mortgage interest from your rental income before calculating tax; now you cannot. Instead, you get a 20% basic-rate tax credit on those costs, which is worth less to higher-rate taxpayers and can cause weird outcomes like break-even portfolios producing tax bills.
Who does Section 24 apply to?
Individual UK-resident landlords letting residential property. It does not apply to limited companies or commercial property. Since 6 April 2025, furnished holiday lets are also caught, as the FHL regime has been abolished. Trusts and partnerships are affected at the individual partner level.
How is the 20% tax credit calculated?
The credit is 20% of the lowest of three figures: your finance costs, your rental profit (before deducting finance costs), and your income above the personal allowance. The 'lowest of three' rule means the credit is capped where it would otherwise wipe out non-property tax, but in most landlord situations the lowest figure is simply the finance cost itself.
Does Section 24 affect basic-rate taxpayers?
For a pure basic-rate taxpayer, the cash effect is usually neutral: the 20% credit roughly equals what the deduction would have produced. The main practical impact for basic-rate landlords is that the higher 'profit' figure on their tax return can push them across thresholds (basic to higher rate, the £100k taper, the Child Benefit charge), even though their actual cash income has not changed.
Are companies exempt from Section 24?
Yes. Mortgage interest is fully deductible in a UK limited company, the same as any other business expense. This is one of the main reasons portfolio landlords have moved to a company structure since 2017. The trade-off is corporation tax on profits and the cost of getting cash out of the company through dividends or salary; we model both routes for clients each year.
Can I avoid Section 24 by transferring my property to a company?
You can hold new properties in a company easily; the difficulty is transferring existing personally-owned properties into a company. The transfer is treated as a sale at market value, which can trigger Capital Gains Tax for you and Stamp Duty Land Tax for the company. Specific reliefs (notably incorporation relief) can mitigate this for landlords running a property business at sufficient scale, but the threshold is strict and incorrect application is one of HMRC's frequent enquiry triggers. Take advice before you transfer anything.
Is mortgage interest tax deductible for landlords?
Not for individual landlords letting residential property. Since April 2020 mortgage interest and other finance costs are not deducted from rental income. You claim a tax reduction worth 20% of the finance costs instead. Limited companies and commercial landlords can still deduct the interest in full. Repayments of the loan itself have never been deductible.
Can I claim tax relief on the mortgage for my own home?
No. Interest on a mortgage for the home you live in is not an allowable expense and gets no tax relief. Relief only applies to finance costs of a property business. If you let part of your home, only the interest that relates to the let part is a finance cost.
How was the Section 24 restriction phased in?
In 2017/18, 75% of finance costs could still be deducted and 25% got the 20% credit. That moved to 50% and 50% in 2018/19, 25% and 75% in 2019/20, and 0% and 100% from 2020/21. The 2020/21 position applies today.
Does Section 24 apply to holiday lets?
Since 6 April 2025 the furnished holiday lettings regime has been abolished, so a holiday let owned by an individual is treated like any other residential let and the mortgage interest is relieved through the 20% credit, not as a deduction. Before then, qualifying furnished holiday lets were outside the restriction.
What happens if my finance costs are more than my profit?
The 20% credit is based on the lowest of your finance costs, your property profits and your income above the Personal Allowance. Any finance costs you cannot use in the year are carried forward to later years.
Key terms
- Section 24
- The section of the Finance (No. 2) Act 2015 that restricted income tax relief on residential property finance costs for individual landlords. The change was phased in from April 2017 and fully in force from April 2020.
- Finance costs
- Mortgage interest, mortgage arrangement fees amortised over the loan term, and interest on any other loans used in the rental business. Capital repayments are not finance costs and were never deductible.
- Basic-rate tax credit
- The 20% reduction in your tax bill that Section 24 provides in place of the old finance cost deduction. The credit is capped: it cannot reduce your tax below zero, and it is calculated on the lower of finance costs, rental profit, or income above the personal allowance.
- Adjusted total income
- Your income after deducting the personal allowance and any allowances or reliefs. Used in the Section 24 cap formula to ensure the credit cannot exceed the income tax you would otherwise have paid.
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