Section 24 explained: why you can't deduct mortgage interest

What Section 24 is

Section 24 of the Finance (No. 2) Act 2015 limited the tax relief on finance costs for residential property to the basic rate of Income Tax. Before it, a landlord took mortgage interest off their rent and paid tax on what was left. Now the interest isn't deducted. The tax is worked out on the higher profit, and a reduction is taken off the bill afterwards.

It covers mortgage and loan interest, including loans for furnishings, plus fees for arranging or repaying them. It applies to individuals and partnerships, not to UK or overseas companies. Interest on non-residential property isn't affected.

How it was phased in

How the tax reduction is worked out

The reduction is the basic rate multiplied by the lowest of three figures:

1. Your finance costs for the year, plus any brought forward from earlier years.
2. Your property business profits for the year.
3. Your income above the personal allowance, after reliefs, excluding savings and dividends.

It can't create a refund. If the lowest figure is smaller than your finance costs, the difference is carried forward to the next year. The rate is 20% for 2026/27, and relief is given at the new 22% property basic rate from April 2027.

A worked example, step by step

A landlord in England has a £42,000 salary and receives £15,600 of rent in 2026/27. Running costs are £2,400 and mortgage interest is £6,000. Their rental profit is £15,600 − £2,400 = £13,200. The interest isn't taken off, so here is how the tax comes out.

Step 1: tax on the salary alone

The first £12,570 of income is tax-free (the personal allowance). That leaves £29,430 of salary, taxed at 20%, which is £5,886.

Step 2: add the rental profit

Because the profit pushes income past £50,270 (the higher-rate threshold), £4,930 of it is taxed at 40%.

Step 3: take off the mortgage interest credit

The credit is 20% of the interest: 20% × £6,000 = £1,200. So the tax on the rent is £3,626 − £1,200 = £2,426.

For comparison: if the interest could be deducted

The interest would come off the profit first: £13,200 − £6,000 = £7,200. Income to be taxed would be £29,430 + £7,200 = £36,630, which stays under £37,700, so all of it is taxed at 20%. That's £7,326, less the £5,886 on the salary alone, which gives £1,440.

The restriction costs this landlord £986 a year (£2,426 − £1,440). Without it, the interest would keep the profit inside the 20% band. With it, part of the profit is taxed at 40%, and the credit only gives back 20% of the interest.

Who feels it most

• Higher-rate taxpayers. A deduction would have saved them 40%, but the credit gives only 20%.
• Landlords just under a band. Profit counts as income before the credit, so it can push total income over the higher-rate threshold, or past £100,000 where the personal allowance starts to shrink.
• Basic-rate taxpayers usually end up in much the same place as before.
• Because rental profit is higher, it can also affect things measured on income, such as the High Income Child Benefit Charge.

What landlords can do about it

• Make sure you claim the reduction. It's worked out on your tax return, using your finance costs for the year.
• Track every finance cost, including loan interest for furnishings and fees, and any amount carried forward.
• Claim all your normal expenses. They lower the profit the restriction works from. See allowable expenses for landlords.
• Ask an accountant about your own position. Some landlords look at holding property in a limited company, which isn't covered by Section 24 but has its own costs and taxes, so it needs proper advice.

Common questions