Section 24 Explained: How Much Mortgage Interest Restriction Actually Costs You

What Section 24 actually is

Section 24 is a piece of UK tax legislation that quietly changed the economics of residential buy-to-let. Introduced in the Finance (No. 2) Act 2015 and phased in between April 2017 and April 2020, it removed mortgage interest as an allowable expense for individual landlords with residential lettings. In its place, landlords get a basic-rate tax credit worth 20 percent of the interest paid.

Before April 2017, mortgage interest worked like any other property expense. You took your rental income, subtracted interest along with repairs, insurance and agent fees, and paid Income Tax on what was left. A higher-rate landlord effectively recovered 40 percent of every pound of interest because that pound of interest reduced taxable profit at the higher rate.

From 6 April 2020, the year Section 24 fully landed, that mechanism changed completely. Mortgage interest no longer reduces your rental profit. Your rental profit is calculated before interest, then a separate calculation gives you a tax credit of 20 percent of the interest paid, applied at the end. Basic-rate landlords come out broadly neutral. Higher-rate and additional-rate landlords pay materially more tax than they used to.

The technical name is "restriction of finance costs for residential lettings". The street name, used in every landlord forum and most accountants' offices, is Section 24.

Who Section 24 catches, and who escapes it

Section 24 applies to individuals receiving residential property income, including those holding through partnerships and trusts. If your name is on the title, your name is in scope.

It does not apply to:

• Limited company landlords. Companies pay Corporation Tax on their profits and continue to deduct mortgage interest as a normal business expense. This is the headline reason so many UK landlords have moved part of their portfolio into a SPV (special purpose vehicle) limited company since 2017.
• Commercial property. Office, retail, industrial and mixed-use lettings stay on the old rules. Mixed-use property is apportioned, with the residential element falling under Section 24 and the commercial element treated normally.
• Furnished Holiday Lets, until 5 April 2025. The Furnished Holiday Letting (FHL) regime sat outside Section 24 because qualifying short lets were treated as a trade, not an investment. The FHL regime was abolished from 6 April 2025. Properties that previously qualified are now ordinary residential lettings, and Section 24 applies in full from 2025/26 onward. We saw a wave of holiday-let owners face a sharply higher tax bill in their first post-abolition return.

Most people we speak to about Section 24 fall into one of three groups: a single accidental landlord with one mortgaged property they used to live in, a portfolio landlord with three to fifteen properties built up since 2010, or a higher-rate professional with one or two leveraged BTLs as part of a wider income picture. The maths varies for each, but the principle is the same.

The maths: a worked example at higher rate

Numbers help. Here is the situation we see most often when a higher-rate professional first calls us about Section 24.

Mira (not her real name) is a London project manager earning £85,000 from her day job. She owns a flat in Tooting let to long-term tenants for £24,000 a year. The buy-to-let mortgage is £270,000 at 5.5 percent, so annual interest is £14,850. Letting agent fees, insurance, repairs and ground rent total £4,200.

Under the pre-2017 rules her rental profit would have been £4,950: £24,000 minus £14,850 minus £4,200. As a higher-rate taxpayer she would have paid £1,980 of tax on that profit (40 percent), leaving her £2,970.

Under Section 24, the calculation runs differently. Her rental profit is £19,800: £24,000 minus £4,200, with the £14,850 of mortgage interest no longer deducted. Tax at 40 percent on £19,800 comes to £7,920. She then gets a basic-rate tax credit of 20 percent of the interest paid, so £14,850 × 20 percent = £2,970, knocking her tax bill down to £4,950. After paying the actual interest of £14,850, she keeps £4,200 minus £4,950 of tax, which is a loss of £750.

Compare the two figures. The pre-2017 mechanism left her £2,970 in pocket. Section 24 leaves her £750 worse off. The annual difference is £3,720 from the same property, the same tenants, the same rent and the same mortgage.

Why your taxable income looks higher than it really is

This is the bit a lot of landlords miss until they read their Self Assessment summary. Section 24 raises your headline taxable income, even if your real cash position has barely changed. Mira's "income" from rentals on paper is £19,800, even though her actual cash margin after interest and costs is closer to nothing.

Why does that matter? Because several other UK tax rules trigger at headline-income thresholds, not at real-margin thresholds.

• Personal allowance taper. Above £100,000 of total taxable income, the personal allowance reduces by £1 for every £2 over the threshold. A landlord with a strong day job who tips over £100,000 because of phantom rental income loses up to £12,570 of allowance, costing up to £5,028 in extra tax. We see this most often with three-property landlords who had nothing to worry about before 2017.
• Higher-rate threshold itself. A basic-rate taxpayer can be pushed into the 40 percent band purely by the addition of mortgage interest back onto rental profit, even though they have no extra real income. The credit at 20 percent does not fully offset the higher-rate cost.
• Child Benefit High Income Charge. Above £60,000 (2025/26) the High Income Child Benefit Charge starts to claw back Child Benefit. Landlords with families have been pulled into the charge by Section 24 alone.
• Student loan repayments. Plan 2 graduates repay 9 percent of income above the threshold. Higher headline rental income increases the deduction.

The cumulative effect can be brutal. We onboarded a Fulham landlord last quarter whose three flats produced a real cash margin of £6,800 a year after interest. Her Self Assessment treated her at over £108,000 of total income, costing her £4,900 of personal allowance and several hundred pounds of extra higher-rate tax beyond the headline Section 24 hit. The combined effect was an effective tax rate above 90 percent on the actual cash margin from the portfolio.

Workarounds people try, and which actually help

Once a landlord understands the cost, the first instinct is to look for a fix. Some routes work. Some look attractive but fall apart on closer inspection.

Switch to repayment mortgage

Repayment mortgages reduce the interest portion of each monthly payment over time. Less interest means a smaller Section 24 hit. The trade-off is short-term cash flow: your monthly outgoings go up because you are now paying capital as well as interest. Most landlords we model find the cash flow consequence outweighs the tax saving unless the loan is small or near the end of its term.

Re-mortgage at a lower rate

Lower interest rates lower the absolute cost. This is helpful but rarely transformative because rates are largely outside your control. It does mean reviewing your fix every two to five years matters more than it used to.

Move the property to a limited company

This is the headline workaround most landlords ask about. Companies pay Corporation Tax (19 percent on profits up to £50,000, 25 percent above £250,000, with marginal relief in between) and continue to deduct mortgage interest as a normal expense. For a higher-rate landlord with leverage, the difference can be thousands of pounds per year in retained profit.

Moving an existing property into a company is not free. You typically trigger Capital Gains Tax on the deemed disposal at market value, and Stamp Duty Land Tax on the company's deemed acquisition, including the 5 percent additional residential surcharge in most cases. Lender re-application is usually required because the borrower changes from individual to SPV, and SPV mortgage rates are typically higher than personal BTL rates.

For multi-property landlords the calculation often supports incorporation, sometimes with the help of Incorporation Relief (Section 162 TCGA 1992) where the property activity meets the test of a business with sufficient time commitment. This is a specialist area and the test is fact-specific. We never advise incorporation without modelling at least three years of tax position both ways.

Transfer to a lower-rate spouse

If one spouse is a basic-rate taxpayer and the other is higher-rate, transferring all or part of the property between them shifts more of the income into the basic-rate bracket. Section 24 still applies, but the credit at 20 percent now matches the rate at which the income is taxed, so the net tax cost of interest is roughly neutral. This works particularly well for couples with a clear earnings split. It needs a Form 17 for unequal income splits and proper legal documentation.

Pay down the mortgage

Reducing the loan reduces the interest, which reduces the Section 24 effect. Whether this is the best use of capital depends on what else you might do with the money. We model this against pension contribution, Stocks and Shares ISA contribution and reinvestment in a SPV company on every portfolio review.

Things that don't help (but get suggested)

Sole-trade incorporation tricks designed for self-employed business owners do not generally apply to property income. "Beneficial interest" structures sold by some property gurus often fail HMRC scrutiny under the settlements legislation. We have helped several landlords unwind expensive schemes that promised a Section 24 fix and delivered a Section 24 problem plus an enquiry.

What changes from April 2027

Budget 2025 announced new property income rates that take effect from 6 April 2027. Property income in England, Wales and Northern Ireland will be taxed at 22 percent at the basic rate, 42 percent at the higher rate and 47 percent at the additional rate, separate from other income. The Scottish and Welsh devolved governments are being given matching powers.

Section 24 sits unchanged through this. You still get a 20 percent basic-rate tax credit on mortgage interest. The gap between the credit (20 percent) and the new property higher rate (42 percent) widens, so higher-rate landlords pay an even higher effective rate on the interest portion of their income from 2027 onwards.

For Mira's example earlier, the 2027/28 maths gets worse. Her £19,800 rental profit, taxed at the new property higher rate of 42 percent, generates £8,316 of tax. Her credit is still £2,970. Net tax £5,346, an extra £396 a year compared to 2025/26 from the rate change alone, before any rent or interest movement.

The order-of-allowances change announced at Budget 2025 stacks on top. From 2027/28, general reliefs and the personal allowance are applied to other sources of income first, then to property, savings and dividend income. For landlords with mixed income this pushes more of the rental income into the higher band.

What this means for you

If you are a basic-rate landlord, Section 24 has limited bite. You may want to forecast against the 2027/28 changes anyway, particularly if your rental income is climbing.

If you are a higher-rate or additional-rate landlord with leverage, three things are worth doing in this tax year:

1. Get the actual cost in writing. Most landlords we speak to underestimate their Section 24 hit by two to three thousand pounds because they are still mentally working off pre-2017 maths. A proper calculation using your latest mortgage interest figure and your day-job income tells you the real number.
2. Model incorporation properly. Not "should I incorporate" in the abstract, but "what would the next three years look like" with full modelling of CGT on transfer, SDLT, lender costs, Corporation Tax, dividend tax (rising to 35.75 percent at higher rate from April 2026) and the eventual extraction profile. The maths supports incorporation more often than not above two leveraged properties, but never universally.
3. Plan for 2027/28 now. The new property rates plus the order-of-allowances change land in the 2027/28 tax year, which is filed by January 2029. Landlords who model the impact in 2025/26 have the time to restructure cleanly. Landlords who wait until 2027/28 will be paying tax on a position they could have changed.

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