Section 24 Mortgage Interest Restriction for UK Landlords 2026/27

What Is Section 24?

Section 24 of the Finance Act 2015 fundamentally changed the way individual buy-to-let landlords receive tax relief on their mortgage interest and other finance costs. Before Section 24 was introduced, landlords could deduct the full cost of mortgage interest, loan arrangement fees and other finance charges from their rental income as a business expense. This meant that a higher-rate taxpayer effectively received tax relief on their interest costs at 40%.

The government phased in the restriction between 2017 and 2020. From April 2020 onwards, no individual landlord can deduct any finance costs from rental income. Instead, every landlord -- regardless of their tax rate -- receives a single tax credit equal to 20% of their total finance costs.

The policy was controversial from the start. Critics argued it distorts the rental market, discourages individual landlords and pushes properties towards corporate ownership. Supporters argued it levelled the playing field between homebuyers and landlords. Whatever your view, the rules are clear and understanding them is essential for every buy-to-let investor.

How the 20% Tax Credit Works

The mechanics of Section 24 work as follows:

1. You add all rental income together (total rent received before any deductions for mortgage interest)
2. You deduct all allowable property expenses other than finance costs -- letting agent fees, repairs and maintenance, insurance, ground rent, service charges, accountancy fees and similar
3. The resulting figure is your property profit before finance costs
4. This profit is added to your other income (employment, self-employment, pensions, dividends etc.) to determine your total income
5. You calculate Income Tax on your total income using normal rates and the Personal Allowance of GBP 12,570
6. You then deduct a tax credit of 20% of your total finance costs from the tax calculated in step 5

The crucial point is step 4. Because mortgage interest is no longer deducted from rental income before it is assessed, your rental income in full is stacked on top of your other income. This frequently pushes landlords who would otherwise be basic-rate taxpayers into the higher-rate band, or pushes existing higher-rate taxpayers deeper into it.

Worked Example: Basic-Rate Landlord

Consider a landlord with GBP 30,000 in employment income, GBP 14,400 in annual rental income (GBP 1,200 per month) and GBP 8,000 per year in mortgage interest. Allowable expenses other than the mortgage come to GBP 2,000.

Under the old rules (pre-2017):

• Rental profit = GBP 14,400 minus GBP 8,000 interest minus GBP 2,000 expenses = GBP 4,400
• Total income = GBP 30,000 + GBP 4,400 = GBP 34,400
• Tax on income above GBP 12,570 = GBP 21,830 at 20% = GBP 4,366

Under Section 24 (2026/27):

• Rental profit before finance costs = GBP 14,400 minus GBP 2,000 expenses = GBP 12,400
• Total income = GBP 30,000 + GBP 12,400 = GBP 42,400
• Tax on income above GBP 12,570 = GBP 29,830 at 20% = GBP 5,966
• Minus 20% credit on GBP 8,000 interest = minus GBP 1,600
• Net tax bill = GBP 4,366

In this case the basic-rate landlord pays the same tax as before because the 20% credit exactly offsets the 20% rate at which the interest would previously have been deducted. Section 24 is neutral for basic-rate taxpayers who remain basic-rate taxpayers after their rental income is added.

Worked Example: Higher-Rate Landlord

Now consider a landlord with GBP 55,000 in employment income, GBP 18,000 in rental income and GBP 10,000 in annual mortgage interest. Allowable non-finance expenses are GBP 2,500.

Under the old rules:

• Rental profit = GBP 18,000 minus GBP 10,000 minus GBP 2,500 = GBP 5,500
• Total income = GBP 55,000 + GBP 5,500 = GBP 60,500
• Tax: GBP 37,700 (GBP 12,571-50,270) at 20% = GBP 7,540; GBP 10,230 (GBP 50,271-60,500) at 40% = GBP 4,092
• Total income tax = GBP 11,632 (ignoring Personal Allowance for simplicity in this illustration)

Under Section 24:

• Rental profit before finance costs = GBP 18,000 minus GBP 2,500 = GBP 15,500
• Total income = GBP 55,000 + GBP 15,500 = GBP 70,500
• The entire GBP 15,500 rental profit sits in the higher-rate band (employment income alone already exceeds GBP 50,270)
• Additional tax on rental profit = GBP 15,500 at 40% = GBP 6,200
• Minus 20% credit on GBP 10,000 = minus GBP 2,000
• Extra tax on rental = GBP 4,200

Under the old rules the tax on rental profit would have been GBP 5,500 at 40% = GBP 2,200. Section 24 has increased the tax attributable to this property from GBP 2,200 to GBP 4,200 -- an increase of GBP 2,000 per year. That GBP 2,000 is exactly 20% of the GBP 10,000 mortgage interest: the lost relief at 40% (GBP 4,000) offset by the 20% credit received (GBP 2,000).

Use the CalcHub Rental Income Tax Calculator to run these numbers for your own portfolio with your actual figures.

The Trap: Rental Income Pushing You Into Higher-Rate Tax

A subtler impact of Section 24 catches many landlords who are naturally basic-rate taxpayers from their employment or pension income. Because mortgage interest is no longer subtracted from rental income before it is assessed, their total income -- employment plus full rental receipts -- can tip over the GBP 50,270 higher-rate threshold.

This means part of their rental income is taxed at 40% rather than 20%, while they still only receive a 20% credit on their mortgage interest. The effective rate of unrelieved interest for the portion in the higher-rate band is 20 percentage points (40% rate minus 20% credit).

The Personal Allowance taper above GBP 100,000 creates another trap. If total income (including full rental receipts) exceeds GBP 100,000, the GBP 12,570 Personal Allowance begins to taper away at a rate of GBP 1 for every GBP 2 of income above GBP 100,000. This creates an effective 60% marginal rate between GBP 100,001 and GBP 125,140 -- a painful interaction with Section 24 for landlords with large portfolios.

Limited Company Buy-to-Let

Properties held inside a limited company are not subject to Section 24. A company can deduct all finance costs -- mortgage interest, arrangement fees, loan costs -- as business expenses before calculating its Corporation Tax liability.

Corporation Tax rates for 2026/27 are:

• 19% on profits up to GBP 50,000
• 25% on profits above GBP 250,000
• Marginal relief applies between GBP 50,000 and GBP 250,000

For a portfolio generating, say, GBP 30,000 in profit after all expenses including mortgage interest, a company would pay 19% Corporation Tax (GBP 5,700) whereas a higher-rate individual taxpayer would pay 40% Income Tax on the equivalent gross rental income before the interest deduction.

However, transferring an existing personally-held property into a company is treated as a disposal at market value for Capital Gains Tax purposes. CGT on residential property is charged at 18% (basic rate) or 24% (higher rate) for 2026/27, with an Annual Exempt Amount of only GBP 3,000. Stamp Duty Land Tax also applies to the transfer at the standard residential rates plus the 3% additional property surcharge.

For most landlords with existing portfolios the upfront tax costs of incorporation are prohibitive. The strategy works best when building a portfolio from scratch through a company structure from day one.

What Expenses Can Landlords Still Deduct?

Section 24 restricts only finance costs. All other allowable expenses remain fully deductible from rental income:

• Letting agent and management fees
• Repairs and maintenance (not improvements)
• Buildings and contents insurance
• Ground rent and service charges
• Accountancy and legal fees related to the letting
• Council tax, utilities or other costs the landlord pays on behalf of tenants
• Advertising costs for finding tenants
• Travel to inspect the property (mileage at HMRC approved rates)

Improvements -- such as adding a new bathroom or converting a loft -- are capital expenditure and not deductible as a revenue expense, though they may reduce a future CGT liability when the property is sold.

Planning Strategies Under Section 24

Landlords facing higher tax bills under Section 24 have several options to consider:

Making pension contributions -- Contributions to a personal pension scheme reduce your adjusted net income, which can keep you out of higher-rate tax or preserve the Personal Allowance. For 2026/27 you can contribute up to GBP 60,000 to pensions (or 100% of earnings, whichever is lower).

Accelerating deductible repairs -- Legitimate repair costs can be brought forward to reduce rental profits in high-income years.

Holding property in a spouse's name -- If one spouse is a basic-rate taxpayer, transferring ownership or beneficial interest to them can reduce the household tax bill, though legal and SDLT implications apply.

Reviewing portfolio viability -- Some landlords find that certain properties no longer generate a meaningful after-tax return under Section 24. Selling may be more tax-efficient than continuing to let.

Use the CalcHub Buy-to-Let Calculator to model your specific property's after-tax cash flow under Section 24 rules.