Quick answer
Under Section 24, landlords of residential property can no longer deduct mortgage interest from rental income. Instead they receive a tax reduction worth 20% of finance costs, which hurts higher-rate taxpayers most.
Updated October 2026 · Figures based on 2025/26 rates
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How it works
Your taxable rental profit is calculated before finance costs. You then deduct 20% of the interest from your Income Tax bill, limited by property profits, adjusted income and the total finance costs.
Who is affected
Higher and additional-rate taxpayers lose the most, since relief at 20% replaces relief at 40% or 45%. Some landlords are pushed into a higher band because profit appears higher.
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What counts as finance costs
Mortgage interest, interest on loans to buy or improve property, and related fees. Capital repayments are not included.
Planning points
Review ownership, consider whether incorporation suits your situation, and take advice because capital gains, stamp duty and mortgage terms can outweigh the benefits.
How Section 24 changed the way landlords are taxed
Before the rules were phased in, an individual landlord could deduct mortgage interest and other finance costs from rental income and pay tax only on the profit. Under Section 24 that deduction no longer applies to residential lettings held in your own name. Instead, you calculate your rental profit without deducting finance costs, and then claim a tax reduction worth 20% of those costs. Because the reduction is given at the basic rate only, higher-rate and additional-rate taxpayers receive less relief than they would have under the old approach.
The rules apply to interest on mortgages and loans used to buy or improve let property, and to some related finance costs such as arrangement fees. Day-to-day costs like repairs, letting agent fees and insurance are still deducted as normal expenses. If you are unsure which category a cost falls into, check HMRC’s guidance on working out rental income or read our guide to allowable expenses for landlords.
How the 20% tax reduction is worked out
The reduction is 20% of the lowest of three figures:
- Your finance costs for the year (plus any unused finance costs carried forward).
- Your property profits for the year, before finance costs.
- Your adjusted total income above the Personal Allowance.
Any finance costs that are not relieved because of the limit can be carried forward and used in a later year. The tax reduction comes off your final tax bill, not off your taxable income, which is why it can still push some landlords into a higher band.
Worked example: a higher-rate landlord
This is an illustrative example. A landlord in England has a salary of £40,000 and one let property producing £24,000 of rent. Allowable expenses (agent fees, insurance, repairs) are £4,000, and mortgage interest is £8,000. The Personal Allowance is £12,570 and the basic rate band is £37,700 of taxable income.
| Item | Old method (interest deducted) | Section 24 method |
|---|---|---|
| Rental profit for tax | £24,000 – £4,000 – £8,000 = £12,000 | £24,000 – £4,000 = £20,000 |
| Total income | £52,000 | £60,000 |
| Taxable after £12,570 allowance | £39,430 | £47,430 |
| Tax at 20% on first £37,700 | £7,540 | £7,540 |
| Tax at 40% on the remainder | £1,730 x 40% = £692 | £9,730 x 40% = £3,892 |
| Tax before reduction | £8,232 | £11,432 |
| Finance cost reduction | nil | 20% x £8,000 = £1,600 |
| Final tax on salary and rent | £8,232 | £9,832 |
The landlord pays £1,600 more under Section 24 than under the old method, because £8,000 of interest that would have saved tax at 40% (£3,200) now saves only 20% (£1,600). A basic-rate taxpayer whose total income stays within the basic rate band would see little or no difference.
Does Section 24 push you into a higher band?
It can. Because interest is no longer deducted, your taxable rental profit rises, and so does your total income. That can bring you into the higher-rate band, affect the High Income Child Benefit Charge (which starts at £60,000 of adjusted net income) and, above £100,000, reduce your Personal Allowance. Those knock-on effects are easy to overlook, so model your position before deciding whether to expand a portfolio or change ownership.
Ownership options to consider
Some landlords look at holding property through a limited company, where finance costs are generally deductible when calculating company profits. However, moving existing property into a company can trigger Capital Gains Tax and Stamp Duty Land Tax, and taking money out of a company is taxed again. Read our comparison of buying through a company or in your own name and, if you co-own, our guide to jointly owned rental property. Take advice before restructuring, as the right answer depends on your circumstances.
Common mistakes
- Still deducting mortgage interest as an expense in the rental pages of the return.
- Forgetting to claim the 20% finance cost reduction.
- Treating capital repayments of the mortgage as finance costs; only interest and related costs count.
- Overlooking carried-forward finance costs from earlier years.
- Assuming the rules apply to limited companies, which are taxed differently.
- Not checking how the higher profit figure affects other allowances and charges.
Landlord checklist
- Annual mortgage statements showing interest paid.
- Records of fees and other finance costs.
- Rent received and expenses for each property.
- Any finance costs brought forward.
- A projection of your total income and the band it falls into.
Our team at Self Assessment Tax Return Accountants (SATR) prepares landlord returns online for a fixed fee from £199 + VAT, with qualified UK accountants applying the finance cost reduction correctly. See our landlord Self Assessment service or the guide on reporting rental income on Self Assessment.
This article is general information, not personal tax advice.
Frequently asked questions
Does Section 24 apply to limited companies?
No. Companies can still deduct finance costs in full as an expense.
Does it apply to furnished holiday lets?
The furnished holiday let regime has been abolished from April 2025, so ordinary property rules now generally apply.
Can I carry forward finance costs I could not use?
Yes. Where the 20% reduction is restricted by the lowest-of-three limit, the unused finance costs can be carried forward and used in a later year when the limit allows.
Does Section 24 apply to furnished holiday lets or commercial property?
It applies to residential property let by individuals and partnerships. Commercial lettings are treated differently, and holiday letting rules changed from 6 April 2025, so check current HMRC guidance for your type of letting.
Does Section 24 affect landlords with limited companies?
No. Companies deduct finance costs in calculating their profits for Corporation Tax, though other tax costs arise when profits are paid out to shareholders.
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The bottom line
Section 24 means individual landlords can no longer deduct mortgage interest from rental income, and instead receive a 20% tax reduction on finance costs. Higher-rate taxpayers feel this most, and the higher profit figure can push you into a higher band or affect the High Income Child Benefit Charge. Keep good records, claim the reduction correctly, and take advice before restructuring.
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