Buy-to-Let Mortgage Interest Relief vs Pension Tax Relief: Which Works Harder for a Landlord? (2026/27)

Why Section 24 Changed the Maths for Landlords

Before April 2020, individual landlords deducted mortgage interest from rental income before calculating tax, just like any other business expense. A higher-rate taxpayer effectively received 40% relief on their interest costs. Since the phased introduction of Section 24 (fully in force since the 2020/21 tax year), that deduction has been replaced with a flat 20% tax credit, applied after rental profit is taxed at the landlord's full marginal rate.

This change hits higher-rate and additional-rate taxpayer landlords hardest, because the gap between the rate their rental profit is taxed at (up to 45%) and the rate their interest relief is given (20%) can be substantial. It has also pushed some landlords who were previously basic-rate taxpayers into higher bands, because the full rental income (not income minus interest) now counts toward their taxable income for band purposes.

Worked Example: A Higher-Rate Landlord's Interest Bill

Consider Deepa, a higher-rate (40%) taxpayer landlord with a buy-to-let mortgage of £150,000 at 5% interest, paying £7,500 in mortgage interest for the year.

This £1,500 annual loss, purely from the mechanics of Section 24, is the starting point for comparing further property investment against pension contributions.

Pension Contributions: Relief at the Marginal Rate

Pension contributions work in the opposite direction. A higher-rate taxpayer landlord who contributes to a personal pension or SIPP receives tax relief at their full marginal rate — 40% for higher-rate, 45% for additional-rate taxpayers — through a mix of automatic basic-rate relief added by the provider (turning a £8,000 net contribution into £10,000 gross) and further relief claimed via self-assessment for the remaining 20% or 25%.

Worked example: Deepa has £10,000 of spare rental profit after tax and living costs and is deciding between (a) saving it toward a deposit on another buy-to-let property, or (b) making a pension contribution.

For every £10,000 that goes into Deepa's pension, her true out-of-pocket cost is £6,000, once the further higher-rate relief is reclaimed. To get the same £10,000 of value into a new buy-to-let deposit, she has to find the full £10,000 from already-taxed income — no equivalent uplift exists for a cash deposit.

Side-by-Side: Pension Contribution vs New Buy-to-Let Purchase

Why Some Landlords Are Now Prioritising Pensions

For a landlord like Deepa who already owns several mortgaged properties and pays higher-rate tax, the maths increasingly favours channelling spare rental profit into a pension rather than a further leveraged purchase:

• Relief gap: 45% (additional-rate pension relief) or 40% (higher-rate) versus 20% (Section 24 mortgage interest credit) is a large, structural difference that doesn't change year to year.
• Annual Allowance headroom: at £60,000/year for most people, the standard Annual Allowance comfortably covers typical landlord pension contributions, without triggering the tapered allowance (which only bites once adjusted income exceeds £260,000).
• Reduced exposure to future Section 24-style changes: rental income tax rules have changed materially in the last decade; pension tax relief, while also subject to political risk, has a longer track record of stability for basic contribution relief.
• Diversification away from a single asset class, reducing concentration risk if the property market underperforms.

The trade-off is liquidity. Rental profit kept as cash or reinvested in property remains accessible for maintenance costs, void periods, or a future deposit. Pension contributions are locked away until

shows you a realistic retirement date — currently age 55, rising to 57 from April 2028. Landlords with thin cash reserves should be cautious about over-committing to pensions at the expense of a maintenance and void buffer.

A Note on Limited Company Landlords

Landlords operating through a limited company are not subject to Section 24 at all — mortgage interest is deducted in full as a business expense before Corporation Tax is calculated. This is one reason many higher-rate taxpayer landlords with larger portfolios have incorporated. Incorporation has its own costs, including potential Stamp Duty Land Tax and Capital Gains Tax on transferring existing properties into the company, and different tax treatment when extracting profit as salary or dividends — see our companion analysis on

for how that comparison plays out. For an individual landlord not ready to incorporate, redirecting spare profit into a pension is often the simpler route to recovering some of the relief lost under Section 24.