Mortgage Interest Relief for Landlords: Section 24 Explained

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.

Can landlords still claim tax relief on mortgage interest? Yes — individual landlords with a buy-to-let (BTL) mortgage on a residential property can still get tax relief on mortgage interest, but only as a 20% tax credit that reduces the tax bill, not as a deduction from rental profit. Limited companies and commercial property lets can still deduct mortgage interest in full.

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 20% Tax Credit on Mortgage Interest Works

The Section 24 tax credit gives buy-to-let landlords basic-rate (20%) relief on mortgage interest, and it 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. Where the credit is capped because your property profits or your adjusted total income are lower than your finance costs, the unrelieved finance costs carry forward to the following tax year (see carrying forward unused relief below).

Worked Examples: Mortgage Interest Tax at Different Bands

These examples use 2025/26 Income Tax rates and bands for England, Wales and Northern Ireland: a £12,570 personal allowance, 20% basic rate up to £50,270, 40% higher rate up to £125,140, and 45% above that. The same thresholds apply in 2026/27. Scottish taxpayers pay different rates and bands on rental profit, but the finance-cost credit is still given at the UK basic rate of 20%.

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.

Finance costs are treated separately from your other running costs. For the day-to-day costs you can still deduct in full, see our guide on allowable landlord expenses.

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
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 (FHL) used to be outside Section 24 too, but this exemption ended when the FHL regime was abolished from 6 April 2025.

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 (25% for profits over £250,000, 19% for profits up to £50,000, with marginal relief in between) 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 because your property profits or your income above your personal allowance is lower than your finance costs, the unused portion of those finance costs can be carried forward to the next tax year. (If your finance costs are the lowest of the three figures, you receive full relief on them and there is nothing to carry forward.)

When this happens:

You make a rental loss (before finance costs are considered)
Your adjusted total income above the personal allowance (excluding savings and dividend income) is lower than your finance costs
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.

April 2027: New Property Income Tax Rates and the Section 24 Credit

None of this changes your 2025/26 or 2026/27 tax. Rental profit in those years is taxed at the normal Income Tax rates, and the finance-cost credit stays at 20%.

From 6 April 2027 (the 2027/28 tax year), property income in England, Wales and Northern Ireland moves onto its own set of Income Tax rates. Budget 2025 announced rates 2 percentage points above the standard rates. Budget 2026 (28 October 2026) then proposed a further 2-point rise from the same date. That rise is due to be legislated in Finance Bill 2026-27:

Tax Band	Standard Rate (2025/26)	Property Rate — Budget 2025	Property Rate — Budget 2026 proposal
Basic	20%	22%	24%
Higher	40%	42%	44%
Additional	45%	47%	49%

The Scottish and Welsh governments are being given powers to set their own property income rates. These property-specific rates are part of a wider set of landlord tax changes coming in April 2027.

How this affects Section 24: HMRC's Budget 2025 technical note says relief for residential finance costs will be calculated at the property basic rate from 2027/28 (22% under the Budget 2025 rates). The Budget 2026 documents do not yet spell out the finance-cost credit. If it continues to follow the property basic rate, it would be 24%. A higher credit gives slightly more relief on finance costs, but it does not offset the higher rate on rental profit. Most higher-rate landlords with mortgage interest would pay more tax overall.

Example (higher-rate landlord, £10,000 rental profit, £5,000 mortgage interest):

Tax Year	Tax on Profit	Finance-Cost Credit	Net Tax
2025/26	£10,000 × 40% = £4,000	£5,000 × 20% = £1,000	£3,000
2027/28 (Budget 2025 rates)	£10,000 × 42% = £4,200	£5,000 × 22% = £1,100	£3,100
2027/28 (Budget 2026 proposal)	£10,000 × 44% = £4,400	£5,000 × 24% = £1,200	£3,200

The final row assumes the credit follows the proposed 24% property basic rate, which has not yet been confirmed. Check GOV.UK for the final rules before planning around these figures.

Frequently Asked Questions

Can landlords still claim tax relief on buy-to-let mortgage interest?

Yes, but in a restricted form. Individual landlords letting residential property get BTL mortgage interest relief as a 20% basic-rate tax credit, rather than deducting the interest from rental income. Higher-rate and additional-rate taxpayers therefore get less relief than before April 2017, while basic-rate taxpayers generally see little difference. Limited companies, commercial lets, and property held in a pension scheme are outside the Section 24 restriction.

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. If this is your first year reporting rental income, see our guide to filing your first return as a landlord.

Will the Section 24 tax credit change in April 2027?

It is expected to. From 6 April 2027, property income in England, Wales and Northern Ireland will be taxed at separate property rates. Budget 2025 set these at 22% basic, 42% higher and 47% additional, with the finance-cost credit given at the 22% property basic rate. Budget 2026 (28 October 2026) proposed raising the property rates to 24%, 44% and 49%, subject to Finance Bill 2026-27. How the credit will be set under those proposed rates has not yet been confirmed. Nothing changes for 2025/26 or 2026/27: the credit stays at 20%.

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.

Official Sources

Tax relief for residential landlords: how it's worked out - GOV.UK
Income Tax when you rent out a property: working out your rental income - GOV.UK
Income Tax rates and Personal Allowances - GOV.UK
Renting out a property: Paying tax - GOV.UK
Changes to tax rates for property, savings and dividend income (Budget 2025) - GOV.UK
Income Tax: changes to tax rates for property and savings income (Budget 2026) - GOV.UK