Mortgage Interest Relief for Landlords: Section 24 Explained
See how Section 24 restricts mortgage interest relief for landlords with worked examples at basic and higher rate. Find out which finance costs qualify.
Key Actions
- Check your annual mortgage interest statements for total finance costs paid
- Calculate whether adding rental profit to your other income pushes you into a higher tax band
- Work through a Section 24 calculation using the examples in this guide
- Consider speaking to an accountant if your finance costs are large relative to rental income
- Review whether incorporating may reduce your overall tax bill
Mortgage interest relief for landlords changed fundamentally in April 2020. Buy-to-let landlords can no longer deduct mortgage interest from rental income as an expense. Instead, under Section 24 of the Finance (No. 2) Act 2015, residential landlords receive a tax credit at the basic rate (20%) on their finance costs. This change has a significant impact on higher-rate and additional-rate taxpayers.
This guide explains how the Section 24 restriction works, walks through worked examples at different tax bands, and covers which finance costs qualify for the tax credit.
What Is Section 24?
Section 24 is the restriction on income tax relief for residential landlords' finance costs, sometimes called the "tenant tax" or "landlord tax." Before April 2017, landlords could deduct mortgage interest and other finance costs directly from rental income, reducing taxable profit. This meant higher-rate taxpayers effectively got 40% relief on their mortgage interest.
The restriction was phased in over four years:
| Tax Year | Finance Costs Deductible as Expense | Tax Credit Instead |
|---|---|---|
| 2016/17 | 100% | 0% |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 onwards | 0% | 100% |
From 2020/21, no finance costs are deductible. The full amount is instead used to calculate a 20% tax credit.
How the Section 24 Tax Credit Calculation Works
The Section 24 tax credit is calculated in three steps:
- Calculate rental profit without deducting any finance costs
- Pay Income Tax on that full profit at your marginal rate
- Receive a 20% tax credit on your finance costs, reducing your tax bill
The tax credit equals 20% of the lowest of:
- Your total finance costs for the year (plus any carried forward from previous years)
- Your property business profits (after using any brought-forward losses)
- Your adjusted total income that exceeds your personal allowance (excluding savings and dividend income)
Important: The tax credit cannot create a tax refund — it can only reduce the tax you owe to zero. If the credit exceeds what you can use, the unused portion carries forward to the following tax year.
Worked Examples: Mortgage Interest Tax at Different Bands
Basic-Rate Taxpayer (20%)
Sarah earns £30,000 from employment and has £10,000 rental income with £4,000 in mortgage interest.
| Step | Calculation | Amount |
|---|---|---|
| Rental profit (no deduction for interest) | £10,000 | £10,000 |
| Total income | £30,000 + £10,000 | £40,000 |
| Tax on rental income at 20% | £10,000 × 20% | £2,000 |
| Section 24 tax credit | £4,000 × 20% | −£800 |
| Net tax on rental income | £1,200 |
Under the old rules, Sarah's taxable rental profit would have been £6,000 (after deducting £4,000 interest), and tax at 20% would have been £1,200. For basic-rate taxpayers, the end result is the same.
Higher-Rate Taxpayer (40%)
James earns £55,000 from employment and has £15,000 rental income with £7,000 in mortgage interest.
| Step | Calculation | Amount |
|---|---|---|
| Rental profit (no deduction for interest) | £15,000 | £15,000 |
| Total income | £55,000 + £15,000 | £70,000 |
| Tax on rental income at 40% | £15,000 × 40% | £6,000 |
| Section 24 tax credit | £7,000 × 20% | −£1,400 |
| Net tax on rental income | £4,600 |
Under the old rules, his taxable rental profit would have been £8,000, and tax at 40% would have been £3,200. Section 24 costs James an extra £1,400 per year.
Pushed Into Higher Rate
The restriction can push landlords into a higher tax band. Emma earns £44,000 from employment and has £12,000 rental income with £8,000 mortgage interest.
Under the old rules: Rental profit = £4,000 (after deducting interest). Total income = £48,000. All within the basic rate band up to £50,270 (2025/26).
Under Section 24: Rental profit = £12,000. Total income = £56,000. This pushes £5,730 of income above the £50,270 basic-rate threshold into the higher-rate band.
| Step | Calculation | Amount |
|---|---|---|
| Rental income in basic rate band | £6,270 × 20% | £1,254 |
| Rental income in higher rate band | £5,730 × 40% | £2,292 |
| Total tax on rental income | £3,546 | |
| Section 24 tax credit | £8,000 × 20% | −£1,600 |
| Net tax on rental income | £1,946 |
Without Section 24, her rental income would have been taxed entirely at 20%, giving a tax bill of £800 on £4,000 profit. The restriction adds £1,146 to her annual tax bill and tips her into the higher-rate band.
Which Finance Costs Qualify for the Landlord Tax Credit?
The 20% tax credit applies to all finance costs related to your residential rental property:
- Mortgage interest — the interest portion of your monthly payments (not capital repayments)
- Loan interest — on loans taken out to buy, improve, or repair the property
- Interest on loans for furnishings — if you borrowed to furnish a rental property
- Overdraft interest — on accounts used for the rental business
- Arrangement fees — for setting up or renewing a mortgage
- Early repayment charges — if you pay off a mortgage early
Capital repayments are not finance costs. Only the interest element qualifies. Your annual mortgage statement will show how much of your payments went towards interest.
Who Is Exempt from Section 24?
The restriction applies specifically to residential property let by individual landlords. It does not apply to:
- Limited companies — companies can still deduct mortgage interest as a business expense, paying Corporation Tax on the reduced profit
- Furnished Holiday Lettings (FHL) — note that the FHL regime was abolished from April 2025, so properties previously qualifying as FHLs are now subject to Section 24 from the 2025/26 tax year
- Commercial property — offices, shops, warehouses, and other non-residential lets are unaffected
- Property held in a pension (SIPP/SSAS) — different tax treatment applies
Furnished Holiday Lettings Abolition and Section 24
The abolition of the Furnished Holiday Lettings regime from 6 April 2025 is particularly relevant. Landlords who previously qualified for FHL status could deduct mortgage interest in full against their rental income. From the 2025/26 tax year, these properties are treated as standard residential lettings and fall under Section 24. If you have a holiday let with significant mortgage costs, this change may increase your tax bill noticeably.
How Section 24 Affects Your Personal Allowance
Because finance costs are no longer deducted from income, your total reported income may be higher under Section 24. This can have knock-on effects on tax thresholds and benefits:
- Personal allowance taper: If your adjusted net income exceeds £100,000, your £12,570 personal allowance (2025/26) starts reducing by £1 for every £2 above the threshold. Under the old rules, deducting mortgage interest might have kept you below £100,000. Under Section 24, the higher reported income could trigger the taper.
- Child Benefit charge: The High Income Child Benefit Charge applies when a parent's adjusted net income exceeds £60,000 (2025/26). The non-deductible mortgage interest may push you above this threshold.
Example: Tom earns £95,000 from employment and has £10,000 rental income with £6,000 mortgage interest. Under old rules, his total income would have been £99,000 (below the £100,000 taper). Under Section 24, it's £105,000 — triggering loss of £2,500 of personal allowance.
Buy-to-Let Through a Limited Company: Is Incorporation Worth It?
Since Section 24 does not apply to companies, some landlords consider transferring properties into a limited company. However, this involves significant costs and considerations:
Potential benefits:
- Mortgage interest fully deductible against rental profit
- Corporation Tax rate (currently 25% for profits over £250,000, 19% for profits under £50,000) may be lower than your marginal Income Tax rate
- Profits can be retained in the company rather than withdrawn
Potential drawbacks:
- Stamp Duty Land Tax (SDLT) payable on the transfer — including the 5% surcharge for additional properties (2025/26)
- Capital Gains Tax on the deemed disposal at market value
- Higher mortgage rates for limited company borrowing
- Additional compliance costs (company accounts, Corporation Tax return)
- Extracting money from the company triggers dividend tax
Incorporating is a significant decision with upfront costs that may take years to recoup. It's worth discussing with a qualified accountant before proceeding.
Carrying Forward Unused Mortgage Interest Relief
If the tax credit is limited by any of the three caps (finance costs, property profits, or income above your personal allowance), the unused portion can be carried forward to the next tax year.
When this happens:
- You make a rental loss (before finance costs are considered)
- Your total income is low enough that the credit exceeds your tax liability
- You have brought-forward property losses that reduce your property profit below your finance costs
Carried-forward amounts are added to the following year's finance costs when calculating the tax credit.
Frequently Asked Questions
Does Section 24 affect basic-rate taxpayers?
No -- for landlords who remain in the basic rate band, the net effect is broadly the same. You get 20% relief whether it comes as a deduction or a credit. However, if the non-deductible finance costs push your total income into the higher-rate band, you could end up paying more tax than under the old system.
Can I still deduct mortgage interest from rental income?
No. From the 2020/21 tax year onwards, no residential finance costs can be deducted from rental income. The full amount of your finance costs is used to calculate a 20% tax credit instead.
What happened to the Furnished Holiday Lettings exemption?
The FHL regime was abolished from 6 April 2025. Properties that previously qualified as FHLs are now treated as ordinary residential lettings for the 2025/26 tax year onwards. This means Section 24 now applies to mortgage interest on former FHL properties.
How do I report Section 24 on my Self Assessment tax return?
You report finance costs on the SA105 (UK property pages) of your Self Assessment return. Enter your rental income and expenses without deducting finance costs, then enter your total finance costs in the dedicated box. HMRC calculates the 20% tax credit and applies it to your tax bill automatically.
Can a landlord claim mortgage interest through a limited company?
Yes. Section 24 does not apply to limited companies. A company that owns residential property can deduct mortgage interest as a business expense against rental profit before paying Corporation Tax. However, transferring properties into a company triggers Stamp Duty and Capital Gains Tax costs.
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.