Section 24 Mortgage Interest Relief: Still a Problem for Landlords in 2026?

What Section 24 Actually Changed

Before April 2017, landlords could deduct their full mortgage interest from rental income before calculating tax — the same as any other business expense.

From April 2020 (after a four-year phase-in), the deduction was replaced entirely with a 20% tax credit on finance costs. For a basic-rate taxpayer the change is neutral — you still effectively get 20% relief. For everyone paying higher or additional rates, the extra tax is real money.

The Mechanics

Old system (pre-2017): Rental profit = Rental income − All allowable expenses (including mortgage interest)

New system (post-2020): Rental profit = Rental income − All allowable expenses (excluding mortgage interest) Tax due = Rental profit × marginal rate − 20% credit on finance costs

The profit you're taxed on is higher. The credit you get back is fixed at 20%.

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Section 24 Tax Impact by Tax Rate

Assume a landlord has £25,000 annual rental income, £15,000 mortgage interest, and £5,000 other allowable expenses (insurance, maintenance, letting agent fees, wear and tear allowance).

Old calculation:

• Rental profit = £25,000 − £15,000 − £5,000 = £5,000
• Tax at 40% = £2,000

New calculation (Section 24):

• Rental profit = £25,000 − £5,000 = £20,000 (mortgage interest excluded)
• Tax at 40% on £20,000 = £8,000
• Less 20% credit on £15,000 finance costs = −£3,000
• Net tax = £5,000

That is £3,000 more tax per year on a single property with £15,000 of mortgage interest.

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The "Phantom Profit" Problem

Section 24 can create taxable profit where there is none in cash terms.

Example: cashflow-negative landlord

This landlord loses £1,000 in cash per year yet pays £2,800 in tax. Their actual net position is −£3,800. This is not a theoretical edge case — it affects landlords who bought with high loan-to-value mortgages in areas with modest yields, or who remortgaged to release equity.

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The Personal Allowance Trap

Section 24 inflates your rental profit figure — and that inflated figure counts toward:

1. Personal Allowance taper: if your total income (including inflated rental profit) exceeds £100,000, your £12,570 PA reduces at £1 for every £2 above £100,000, creating a 60% effective marginal rate.
2. Child Benefit High Income Charge: HICBC applies once adjusted net income exceeds £60,000. Inflated rental profit pushes more landlords into this charge.
3. Marriage Allowance: if the rental profit pushes you above the basic-rate band, your spouse cannot transfer their unused allowance to you.

Example: £95,000 salary + rental portfolio

The Section 24 landlord above pays roughly £6,800 more in income tax — not just the 40% rate difference, but also the PA taper kicking in harder.

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Section 24 and Limited Companies

A limited company (typically an SPV — Special Purpose Vehicle) holds property as a business. It can still deduct all financing costs including mortgage interest before calculating taxable profit.

Corporation Tax is 19% (profits under £50,000) or up to 25% (profits over £250,000) — lower than higher-rate Income Tax of 40%.

Side-by-side: individual vs limited company

Assume rental profit before finance costs of £30,000 and mortgage interest of £18,000.

But you also need to extract profits from the company — via salary (PAYE) or dividends. Dividends above £500 are taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional) rate. Effective total tax is still lower for many portfolios, but the gap narrows once you factor in extraction.

Incorporation costs

• SDLT: buying the property into a company triggers SDLT as if it were a new purchase (plus the 3% surcharge). On a £250,000 property: approx £10,000.
• CGT: transferring to a connected company can crystallise CGT on accrued gains — though holdover relief may apply.
• Remortgaging: most buy-to-let lenders do not offer mortgages to SPVs; those that do charge higher rates (typically 0.5–1.5% above personal rates).
• Accountancy: company accounts, CT600 filing, payroll — expect £1,500–£3,000/yr in additional accountancy costs.

The break-even point is usually 4–6 properties with substantial existing equity and holding period ahead of 10+ years.

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Mitigation Options Without Incorporating

1. Pension contributions

Pension contributions (SIPP or workplace) reduce your adjusted net income — the figure used for:

• Personal Allowance taper
• HICBC assessment
• Higher-rate band threshold

A landlord with £95,000 salary + £20,000 Section 24 rental profit (total £115,000) could contribute £15,000 to a SIPP. Their adjusted net income drops to £100,000, recovering the full PA (saving up to £5,000 in tax) and potentially eliminating HICBC.

2. Jointly owned property

If you hold the property jointly with a spouse or civil partner who pays basic rate, their share of the rental profit is taxed at 20% — and the Section 24 credit is also 20%, so they are effectively neutral. Only your share gets hit at 40%.

Consider rebalancing ownership ratios via a Form 17 declaration (requires a Deed of Trust and a beneficial interest split, not just the legal title split).

3. Energy Efficiency and Landlord Reliefs

Allowable maintenance expenses, letting agent fees, landlord insurance, and wear and tear provisions reduce the profit before Section 24 applies. While capital improvements are not deductible (they reduce CGT on sale), repairs and like-for-like replacements remain fully deductible. Energy efficiency upgrades can attract Enhanced Capital Allowances in some circumstances.

4. Selling High-Interest Properties

For properties with very high LTV (loan-to-value) ratios where mortgage interest absorbs most of the rent, selling may be the rational choice. CGT applies on disposal, but if you reinvest in lower-geared properties (or lower-geared after paying down equity), the annual tax drag reduces substantially.

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Section 24 and Your Self Assessment

Section 24 must be reported correctly in your SA105 (UK property) supplementary pages:

• Box 26: UK property income (full rents received)
• Box 31: Allowable expenses (excluding finance costs)
• Box 44: Residential finance costs (full mortgage interest — for the 20% credit calculation)
• Box 45: Unused residential finance costs from prior years

HMRC calculates the 20% credit based on Box 44. If you mistakenly still deduct interest in Box 31, you will understate rental profit and potentially face penalties.

From April 2026, landlords with gross rental income above £50,000 must file under Making Tax Digital for Income Tax Self Assessment (MTD ITSA). This will require quarterly digital submissions via compatible software — HMRC's spreadsheet workaround ends.

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Is Section 24 Going Away?

There is no current government proposal to reverse Section 24. Both Labour and Conservative administrations have maintained it. The 2024 Labour manifesto made no commitment to restoration of full mortgage interest relief for individual landlords.

The practical direction has been toward:

• Further rental regulation (Renters' Rights Bill 2025)
• Higher SDLT surcharges on investment purchases (5% additional rate from October 2024)
• MTD ITSA bringing landlords into quarterly digital tax reporting

The policy environment for individual landlords continues to tighten. Section 24 is structural, not temporary.

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Action Plan