In short: Section 24 of the Finance (No. 2) Act 2015, fully in force since April 2020, stops individual landlords deducting mortgage interest as a business expense. Instead you’re taxed on rental income before finance costs, then given a flat 20% tax credit on those costs afterwards. For basic-rate taxpayers it’s broadly neutral (for now), but for higher and additional-rate taxpayers it can turn a real cash profit into a much larger tax bill, and it can even push a basic-rate taxpayer into the higher-rate band on paper. It doesn’t apply to limited companies at all, which is the main reason so many landlords have incorporated.
What actually changed
Before April 2017 (phased in) and fully from April 2020, mortgage interest and other finance costs (arrangement fees, some early repayment charges) were deducted from rental income like any other expense, before working out your taxable profit. Section 24 removed that. Now:
- You calculate rental profit without deducting finance costs, so your “taxable rental income” is higher than your real cash profit.
- That inflated profit figure is added to your other income to determine which tax band you’re in.
- Only after your tax bill is calculated do you get a tax reduction equal to 20% of your finance costs, a basic-rate tax credit, not a deduction from profit.
The practical effect: you’re taxed on money you never actually received as profit (it went straight to the bank as interest), and you only get relief back at the basic rate, no matter what rate you actually pay tax at.
Why higher-rate taxpayers are hit hardest
If you’re a 40% or 45% taxpayer, you used to get interest relief at your full marginal rate. Now you only get it back at 20%, regardless of what band you’re in. The gap between what you’re taxed at and what you’re relieved at is where the pain sits.
Worked example
Say you own a leveraged buy-to-let with: – Rental income: £15,000/year – Mortgage interest: £8,000/year – Other allowable expenses (agent fees, insurance, repairs): £2,000/year – Real cash profit: £15,000 − £8,000 − £2,000 = £5,000
Pre-2017 rules (mortgage interest fully deductible): taxable profit = £5,000. A higher-rate taxpayer pays 40% × £5,000 = £2,000 in tax.
Current rules (Section 24 in full force): taxable profit for tax-band purposes = £15,000 − £2,000 (non-finance expenses only) = £13,000. Tax at 40% = £5,200. Then subtract the 20% credit on finance costs: 20% × £8,000 = £1,600. Net tax = £5,200 − £1,600 = £3,600.
Same real profit (£5,000), but the tax bill has risen from £2,000 to £3,600, an effective tax rate of 72% on actual cash profit. At higher leverage or higher interest rates, it’s entirely possible for the tax bill to exceed the real profit, turning a technically “profitable” letting into a cash loss once tax is paid.
Landlord tax calculator
Section 24 calculator: own name or limited company?
Enter a year’s figures for your property. See what Section 24 costs you, and what you’d keep if you owned it through a limited company instead.
Letting a property? We help landlords get the most from their rent.
Or book a callAn estimate for one owner using England, Wales and Northern Ireland tax rates. It leaves out pension contributions, losses and interest carried forward from earlier years, other companies you own, taking a salary from the company, and Incorporation Relief. It isn’t tax advice: speak to a property accountant before you change how you own a property. Sources: GOV.UK Section 24 guidance, income tax rates, corporation tax rates.
Why it can push basic-rate taxpayers into a higher band
Because the £13,000 figure above (not the £5,000 real profit) is what counts toward your total income for band purposes, a landlord who is otherwise a basic-rate taxpayer can find that adding this inflated rental “profit” on top of their salary tips them into the 40% bracket for part of their income, even though their actual take-home from the property is modest.
For example, someone earning £45,000 in salary with the rental figures above would have £45,000 + £13,000 = £58,000 of income counted for tax-band purposes, comfortably over the £50,270 higher-rate threshold, despite only ever seeing £5,000 of real rental profit.
This is one of the most commonly misunderstood, and resented, features of the rules.
Why it doesn’t apply to limited companies
Section 24 only applies to individual landlords (including those in ordinary partnerships) who own property personally. Limited companies pay Corporation Tax, not Income Tax, on rental profits, and mortgage interest remains a fully deductible business expense against Corporation Tax in the normal way. Corporation Tax is currently 19% on profits up to £50,000, 25% above £250,000, with marginal relief between the two (effective rate up to about 26.5% in that band).
Because interest is deducted before arriving at taxable profit, with no 20%-credit workaround, a leveraged rental business inside a company structure can look materially more tax-efficient than the same portfolio held personally, especially for higher-rate taxpayers. This is the single biggest driver behind the wave of landlord incorporations since 2016 (see our guide to incorporating into a limited company for why moving an existing property into a company is far messier than buying new ones inside one).
What’s changing from April 2027
Following the Autumn Budget 2025, property income tax rates are rising by 2 percentage points from April 2027 (to 22%/42%/47%). To keep the mechanics broadly consistent, the Section 24 finance-cost tax credit is also set to rise from 20% to 22% at the same time, tracking the new basic property rate.
That keeps things roughly neutral for basic-rate landlords, but higher and additional-rate landlords will still only receive relief at the new 22% credit rate, not their marginal rate, so the core distortion Section 24 creates remains firmly in place.
Landlord tax calculator
Section 24 calculator: own name or limited company?
Enter a year’s figures for your property. See what Section 24 costs you, and what you’d keep if you owned it through a limited company instead.
Letting a property? We help landlords get the most from their rent.
Or book a callAn estimate for one owner using England, Wales and Northern Ireland tax rates. It leaves out pension contributions, losses and interest carried forward from earlier years, other companies you own, taking a salary from the company, and Incorporation Relief. It isn’t tax advice: speak to a property accountant before you change how you own a property. Sources: GOV.UK Section 24 guidance, income tax rates, corporation tax rates.
Managing the impact
Common mitigation strategies landlords use include: transferring assets (or letting a spouse who’s a lower earner take a larger income share) to keep as much of the portfolio as possible within basic-rate bands; reducing leverage over time by overpaying mortgages; increasing pension contributions to bring adjusted net income down and preserve personal allowance and lower bands; or incorporating new purchases going forward. None of these fully undoes Section 24’s core effect for anyone holding significant mortgage debt personally as a higher-rate taxpayer, which is exactly why it remains the most-discussed tax grievance among UK landlords.
Related reading
- 50 Questions From Landlords, Answered (all 50 questions)
- our rental income tax explainer
- our mortgage interest tax relief explainer
Sources
- Changes to tax relief for residential landlords: how it’s worked out, including case studies, GOV.UK
- Restricting finance cost relief for individual landlords, GOV.UK
This is general information, not legal, tax, or financial advice. Figures and rules referenced are accurate to the best of available information as of July 2026 unless stated otherwise. Tax rules depend on personal circumstances, always check current HMRC guidance (gov.uk) or consult a qualified accountant/tax adviser before making decisions.
Last Updated on September 29, 2026