Glossary · UK
What is Section 24 (Mortgage Interest Restriction)?
Since April 2020, UK landlords can no longer deduct mortgage interest costs from rental income to calculate profit. Instead, they get a 20% tax credit on the full mortgage interest paid. This means higher-rate taxpayers pay significantly more tax on the same rental income.
Full Definition
Section 24 of the Finance (No. 2) Act 2015 phased out the ability for individual residential landlords to deduct finance costs — primarily mortgage interest — from rental income when calculating taxable profit. The restriction was phased in between 2017 and 2020 and has been fully in effect since 6 April 2020. Under the old system, a landlord with £20,000 of rent and £15,000 of mortgage interest would pay tax only on £5,000 of profit. Under Section 24, the landlord pays tax on the full £20,000 of rental income and then receives a basic-rate (20%) tax credit on the £15,000 of interest — a credit of £3,000. A basic-rate taxpayer sees little difference in net tax. However, a 40% higher-rate taxpayer previously paid £2,000 tax (40% of £5,000 profit) but now pays £8,000 income tax (40% of £20,000) minus the £3,000 credit = £5,000 net tax, a dramatic increase. The restriction applies to individuals and partnerships, but not to limited companies, which can still deduct mortgage interest in full. This has driven many landlords to consider incorporation. Furnished Holiday Lettings (FHL) previously had a different regime that allowed full interest deduction, but the FHL regime was abolished from April 2025, bringing FHLs under the same Section 24 rules as other residential lettings. Landlords may also find that higher taxable rental income pushes them over the £50,000 threshold for the High Income Child Benefit Charge or reduces their personal allowance if income exceeds £100,000.