Section 24 Mortgage Interest Restriction: The Landlord's Guide (2026)

Section 24 restricts mortgage interest relief to a 20% tax credit for individual landlords. Here's how it works, who it hits, and the mitigation strategies that actually work.

Section 24 is the single biggest tax change to affect private landlords in a generation, and it is fully in force now — not coming, not being phased in. If you own residential buy-to-let property in your own name and pay income tax at the higher or additional rate, you are almost certainly paying more tax than you realise on rental income that the bank is taking.

This guide explains the mechanics of Section 24 without the jargon, shows you the real numbers, and sets out the mitigation strategies worth considering — and the ones that are not.

What Section 24 Actually Does

Before April 2017, mortgage interest was an ordinary deductible expense for a residential landlord. You subtracted it from rental income, and paid tax on what was left. A higher-rate landlord effectively got 40% relief on every pound of mortgage interest paid.

Section 24 of the Finance (No. 2) Act 2015 — now enacted in section 272A of the Income Tax (Trading and Other Income) Act 2005 — removed that deduction entirely. The restriction was phased in between 2017 and 2020. Since the 2020/21 tax year it has been fully in force.

What you now receive instead is a tax credit worth 20% of your finance costs — regardless of whether you pay tax at 20%, 40%, or 45%. The credit is set against your final tax bill, not deducted from your income before tax is calculated.

The mechanical difference

A landlord with £20,000 of annual rental income, £10,000 of mortgage interest, and £3,000 of other allowable expenses:

	Before Section 24	Under Section 24
Rental income	£20,000	£20,000
Less: mortgage interest	(£10,000)	Not deductible
Less: other expenses	(£3,000)	(£3,000)
Taxable rental profit	£7,000	£17,000
Tax at 40%	£2,800	£6,800
Less: 20% credit on £10,000 interest	—	(£2,000)
Net tax bill	£2,800	£4,800

Same property, same rent, same mortgage, same outgoings — £2,000 more in tax. For a landlord with several mortgaged properties, this compounds quickly.

Who Section 24 Affects

Section 24 applies to individual landlords (including partnerships and trusts) who hold residential buy-to-let property in their own name and pay income tax on the profits.

Not affected:

Limited companies — they retain the right to deduct mortgage interest as a business expense in full, paying corporation tax on net profit
Commercial property landlords
Furnished holiday lettings — but note the FHL regime was abolished from April 2025. Former FHL properties are now taxed as ordinary residential lets and caught by Section 24

Basic-rate taxpayers paying 20% on their rental profit are broadly unaffected in net terms — the 20% credit matches their marginal rate. The damage falls on higher-rate (40%) and additional-rate (45%) taxpayers, who lose 20 or 25 pence of relief per pound of mortgage interest compared with the old rules.

The Three Hidden Traps

The extra tax bill is obvious. Three secondary effects catch landlords by surprise.

1. The personal allowance taper

Section 24 adds mortgage interest back into your taxable profit figure — inflating the income figure used to test your tax band. If that inflated figure pushes your total income above £100,000, your personal allowance (currently £12,570) reduces at £1 for every £2 above £100,000, creating an effective marginal rate of 60% in the taper zone. A landlord with salary income of £90,000 and inflated rental profit of £15,000 may find themselves well into this trap without expecting it.

2. Child Benefit High Income Charge

The same inflated income figure counts toward the Child Benefit High Income Tax Charge threshold, which now applies once adjusted net income exceeds £60,000. Section 24 can push landlords into this charge purely through the gross rental profit calculation, even where actual net cash profit from the property is modest.

3. Band creep for basic-rate landlords

A basic-rate landlord whose salary plus other income sits at, say, £45,000 may have gross rental profit (before any deduction for mortgage interest) that pushes total taxable income above the £50,270 higher-rate threshold. Once in the higher-rate band, the 20% credit only covers half the relief they would have had on that interest under the old rules.

How to Report Section 24 on Your Tax Return

Finance costs must not be deducted on the property pages (SA105) of your Self Assessment return. The correct approach:

Box 26: Gross rental income
Box 31: Allowable expenses — excluding all finance costs
Box 44: Total residential finance costs for the year (mortgage interest, loan arrangement fees, other qualifying finance costs) — HMRC applies the 20% credit from this figure

The finance costs in Box 44 cover mortgage interest and loan arrangement fees on loans used to acquire or improve the property. They do not include capital repayments — only the interest element of a repayment mortgage qualifies. Check your annual mortgage statement to separate interest from capital.

If the three-part cap limits your credit in any year (the credit is the lower of 20% of finance costs, 20% of rental profit before finance costs, and 20% of total income above the personal allowance), unused finance costs carry forward to the next tax year via Box 45.

From April 2027: New Property Income Rates

Finance Act 2026 (Royal Assent 18 March 2026) introduces separate property income rates from 6 April 2027: 22%, 42%, and 47% for England, Wales, and Northern Ireland. Scotland is excluded.

The important point: the Section 24 credit also rises to 22% in step with the new basic rate. The gap between what higher-rate landlords pay on rental profit and what they recover on finance costs stays at 20 percentage points — the same as now. Coverage suggesting Section 24 becomes more punishing in 2027/28 is wrong on this specific point. The headline rate on rental income rises, but the restriction itself does not widen.

Making Tax Digital for Income Tax also arrives in phases: from 6 April 2026 if gross property and self-employment income exceeds £50,000; from 6 April 2027 if it exceeds £30,000; from 6 April 2028 if it exceeds £20,000. Note it is gross income, not net profit — a highly mortgaged landlord with thin margins can still be caught.

Mitigation Strategies That Actually Work

1. Incorporation into a limited company

A limited company is outside Section 24 entirely and can deduct mortgage interest in full as a business expense, paying corporation tax (19–25%) on net profit rather than income tax at 40–45%. For landlords with several heavily mortgaged properties and a long holding horizon, this is the most effective structural solution.

The costs are significant. Transferring personally-held properties to a company is treated as a disposal at market value, triggering SDLT (at the higher 5% residential surcharge rate that has applied since October 2024 plus standard bands) and potentially Capital Gains Tax. Section 162 TCGA 1992 incorporation relief can defer CGT, but it requires demonstrating that the property activity constitutes a "business" — HMRC reads this test strictly.

The break-even on incorporation costs typically runs to 7–10 years for a portfolio of four or more mortgaged properties. For one or two properties, the upfront costs usually outweigh the long-term saving.

2. Beneficial ownership transfer to a basic-rate spouse

Where a spouse or civil partner pays income tax at the basic rate, transferring beneficial ownership of a share of the property to them means their portion of the rental profit is taxed at 20% — and the 20% Section 24 credit then covers the full interest cost on their share, leaving them no worse off.

The transfer is no gain, no loss for CGT under section 58 TCGA 1992 (spousal transfers). SDLT only arises if mortgage debt above £40,000 transfers with the share. To vary the income allocation from the default 50/50, you need both a Declaration of Trust setting out the new beneficial ownership split, and a Form 17 filed with HMRC. Mortgage lender consent is required before any change to legal title.

3. Pension contributions

For landlords whose inflated rental profit pushes them into the higher-rate band or toward the £100,000 personal allowance taper, pension contributions reduce adjusted net income (ANI). A £5,000–£10,000 pension contribution can move ANI back below the £50,270 threshold (or the £100,000 taper) — eliminating the Section 24 wedge entirely for borderline cases. The contribution itself attracts tax relief at the marginal rate on the way in.

4. Mortgage overpayment

Every pound of interest eliminated cuts the Section 24 exposure without any SDLT, CGT, or mortgage product risk. For a higher-rate landlord, £1,000 of interest reduction saves £200 net (£400 less tax, minus £200 less credit). It is modest, but it compounds, it has no downside, and it fits within most fixed-rate mortgage terms' standard 10% annual overpayment allowance.

5. Sell if the numbers don't work

If mortgage interest exceeds 75% of gross rent for two consecutive years, or if your annual tax bill on the property exceeds the net cash flow, Section 24 is costing you money from your own pocket. At that point, the calculation of whether to hold shifts materially.

Section 24 is not being repealed. Labour confirmed in 2025 it has no plans to restore full mortgage interest relief for individual landlords. The structural direction is a tightening environment — higher SDLT surcharges, Making Tax Digital, greater regulation — not relief.

mypy's Making Tax Digital record-keeping keeps your rental income and allowable expenses in the format HMRC requires for quarterly digital submissions, including the correct separation of finance costs from deductible expenses. Try it free for your first two properties.

Frequently asked questions

What is Section 24 in simple terms?

Section 24 is the rule that stops individual residential landlords deducting mortgage interest from rental income. Instead, you receive a flat 20% basic-rate tax credit on your finance costs. Higher-rate and additional-rate landlords pay tax on the full rental profit (before interest) and only recover 20p per £1 of interest — instead of 40p or 45p as under the old rules.

Does Section 24 apply to limited companies?

No. Limited companies are entirely outside Section 24 and retain the right to deduct mortgage interest as a business expense, paying corporation tax (19–25%) on net profit. This is the reason many landlords with larger portfolios consider incorporation — though the SDLT and CGT costs of transferring property into a company are significant.

What is the three-part cap on the Section 24 credit?

The 20% credit you receive is the lower of three figures: 20% of your finance costs for the year; 20% of your residential rental profit before deducting finance costs; and 20% of your total income above the personal allowance. If the cap limits your credit in any year, the unused portion carries forward to future years.

Did Section 24 change in 2027?

From 6 April 2027, separate property income tax rates of 22%, 42%, and 47% apply (under Finance Act 2026). The Section 24 credit also rises to 22% in step, so the gap between what higher-rate landlords pay and what they recover does not widen. The restriction itself is unchanged.

What is the most effective way to reduce a Section 24 tax bill?

It depends on your situation. For portfolios of four or more mortgaged properties with a 10-year-plus holding horizon, incorporation is often the most effective structural solution once SDLT and CGT costs are modelled. For borderline higher-rate landlords, pension contributions can eliminate the Section 24 wedge at relatively low cost. For all landlords, ensuring expenses are correctly reported on SA105 (not including finance costs as deductions) and keeping the SA105 Box 44 finance costs figure accurate is the starting point.

Sources

This article is general guidance, not legal advice. Tax law is complex and your position depends on your individual circumstances — seek advice from a qualified property accountant before taking action. Last reviewed 2026-07-11.