Section 24 is the usual shorthand for the restriction on finance-cost relief for individual residential landlords. Eligible interest is generally relieved through a basic-rate tax reduction instead of a deduction from rental profit. The result depends on the landlord's full income, costs and available relief, not just the mortgage payment.
Who and what the restriction covers
The restriction applies to relevant residential-property finance costs for individuals and certain other non-company landlords, including individual partners. Companies have a different tax regime, so compare the complete ownership and extraction costs before changing structure. A title deed alone is not a complete test of the income-tax treatment.
Separate interest and eligible finance charges from repayment of loan capital. Capital repayments do not become an income-tax deduction because the loan is a buy-to-let mortgage. Mixed residential and commercial borrowing may need apportionment. HMRC's rental-income guidance explains the wider expense rules.
A corrected 2026/27 worked example
This is an illustrative calculation, not a client account. Assume an individual in England receives £60,000 employment income and the rental amounts below. All the rental profit falls in the 40% band, the full personal allowance remains available, there are no property losses or carried-forward finance costs, and the ordinary finance-cost reduction is available in full. Other income and reliefs can change the result.
| Annual item | Illustrative calculation |
|---|---|
| Rent | £24,000 |
| Other allowable rental costs | £4,200 |
| Eligible mortgage interest | £14,850 |
| Rental profit before finance-cost relief | £24,000 − £4,200 = £19,800 |
| Tax on that profit at 40% | £7,920 |
| Finance-cost tax reduction at 20% | £2,970 |
| Tax attributable to rental profit | £7,920 − £2,970 = £4,950 |
| Rental cash after other costs and interest | £24,000 − £4,200 − £14,850 = £4,950 |
| Rental cash after this tax | £0 |
For comparison only, deducting the same interest before applying a flat 40% rate would give £1,980 tax and £2,970 remaining cash. The difference in this simplified comparison is £2,970, not £3,720. It is not an alternative treatment currently available to this landlord.
The tax reduction has limits
The ordinary reduction is calculated using the lowest relevant amount of finance costs, property-business profits and adjusted total income above the personal allowance. Some unused finance costs can be carried forward. It does not automatically generate a repayment or offset tax on every other source. Review HMRC's calculation guidance before applying a simple percentage.
Because interest does not reduce the rental-profit figure, total income can be higher than the cash left from the property. That can affect income-based allowances and charges. A calculation that ignores employment, pensions, other property, losses or relevant reliefs may miss a material part of the position. Basic-rate landlords are not automatically unaffected in every circumstance.
Separate current calculations from April 2027 proposals
The 2026/27 example above does not use future property-tax rates. The Budget 2026 note published on 29 October proposes property rates of 24%, 44% and 49% from April 2027, replacing the earlier planned 22%, 42% and 47%. It describes legislation to be introduced, so the new proposal must be distinguished from the existing Finance Act 2026 provisions.
The earlier technical note links residential finance-cost relief to the property basic rate from 2027/28. It does not support the old article's claim that relief stays permanently fixed at 20%. Check the final legislation, applicable nation, rate and calculation before relying on a future-year forecast. The treatment of allowances and other income also matters.
Compare practical options using the whole cost
- Loan terms: compare interest, fees, penalties and cash commitments. A lower interest bill can improve cash flow even though the available tax reduction also falls.
- Repaying capital: this may reduce future interest but uses cash. A repayment mortgage's capital element is not a new tax deduction.
- Ownership: check genuine legal and beneficial ownership, lender requirements and transfer taxes before changing shares.
- Company ownership: compare transfer taxes, refinancing, administration, ongoing company tax, money withdrawn personally and eventual disposal.
For spouses or civil partners living together, Form 17 can report an actual unequal beneficial interest where its conditions are met. It does not create that ownership or permit an arbitrary income split. Obtain the necessary ownership evidence and consider the full consequences before making a transfer.
There is no reliable rule that incorporation is worthwhile above a fixed number of properties. Ask for a comparison that shows the assumptions, transfer costs, ongoing cash, extraction and the point at which any initial cost might be recovered. A lower tax rate inside a company is not the same as more spendable personal income.
What to bring to a review
Bring the mortgage interest certificate and loan history, rent and expense records, ownership documents, property values, acquisition costs, other income and carried-forward tax information. Distinguish interest from capital and cash payments from accounting or tax deductions.
A free initial call establishes the question and records required. A written personal calculation, incorporation model or future-year forecast is detailed work with its own agreed scope and fee. The call itself does not include a completed tax model.
Frequently asked questions
Is the whole mortgage payment eligible for relief?
Does a 20% reduction always mean a full refund of 20% of interest?
Are basic-rate landlords always unaffected?
Will finance-cost relief stay at 20% after April 2027?
Does transferring a property to a company automatically save tax?
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