Section 24 is still one of the most important tax rules for individual landlords because it changes how mortgage interest relief works. The old model allowed many landlords to deduct finance costs from rental income before calculating taxable profit. The current model does not work like that.
Instead, most affected individual residential landlords now calculate rental profit without deducting finance costs in the old way, then claim a 20% tax credit on qualifying finance costs. That difference matters most when your personal tax rate is above basic rate.
What is Section 24?
Section 24 is shorthand for the mortgage interest relief restriction that applies to many individual landlords of residential property.
In practical terms, it means you no longer get full tax relief at your marginal Income Tax rate on qualifying finance costs in the same way as before.
What changed
| Before the restriction | After the restriction |
|---|---|
| Finance costs deducted in arriving at taxable rental profit | Finance costs generally relieved via a 20% tax credit |
| Higher-rate taxpayers got relief at higher rates | Relief effectively limited to the basic rate in many cases |
Who does Section 24 affect?
It primarily affects individual landlords holding residential property personally and using borrowing.
It matters most when:
- The property is heavily mortgaged
- The landlord pays tax above the basic rate
- The rental margin is thin
- The landlord owns multiple mortgaged properties
Who it does not affect in the same way
| Owner type | Section 24 impact |
|---|---|
| Individual residential landlord | Usually relevant |
| Limited company landlord | Different tax framework |
| Cash buyer with no finance costs | Much less relevant |
Important: Section 24 is not a separate tax you pay. It is a restriction on how finance costs are relieved.
What counts as a finance cost?
The finance cost rules can cover:
- Mortgage interest
- Interest on loans used for the rental business
- Certain arrangement fees and related borrowing costs
The capital repayment part of a mortgage is never deductible as an expense.
How does the 20% tax credit work?
The taxable rental profit is calculated before deducting the finance costs in the old way. A basic-rate tax reduction is then applied to qualifying finance costs, subject to the detailed limits.
Why this feels worse for higher-rate landlords
A higher-rate taxpayer may have expected 40% relief under the old model. Under the current system, the effective relief on qualifying finance costs is generally 20%.
| Taxpayer profile | Old-style effect on finance costs | Current broad effect |
|---|---|---|
| Basic-rate taxpayer | Around 20% | Around 20% tax reduction |
| Higher-rate taxpayer | Around 40% | 20% tax reduction |
| Additional-rate taxpayer | Around 45% | 20% tax reduction |
Did you know? Section 24 can also push some landlords into higher tax bands on paper because the profit figure used in the tax calculation is higher before the finance cost reduction is applied.
A simple worked example
| Item | Old-style treatment | Current broad treatment |
|---|---|---|
| Rent received | £18,000 | £18,000 |
| Non-finance expenses | £3,000 | £3,000 |
| Mortgage interest | £8,000 deducted in profit calc | Not deducted in same way |
| Taxable rental profit before relief | £7,000 | £15,000 |
Under the current system, tax is calculated on the larger profit figure first, and then the landlord usually gets a 20% tax reduction on the qualifying finance costs. For a higher-rate taxpayer, that can mean a materially bigger bill than under the old model.
Why Section 24 matters beyond the tax bill
The rule changes more than just the final number due to HMRC.
Common knock-on effects
- Lower post-tax cash flow
- Reduced headroom for portfolio growth
- Higher apparent income for some personal tax calculations
- Greater interest in company ownership structures
This is why Section 24 often sits at the centre of the personal versus company debate.
Attention: A property can still show a decent pre-tax yield and become disappointing after Section 24, especially if the mortgage is large and the owner pays higher-rate tax.
Does Section 24 mean landlords should always use a company?
No. It explains why more landlords model company ownership, but it does not make the answer automatic.
A company can avoid this specific restriction in the same way an individual cannot, but the company route brings:
- Different mortgage pricing
- More admin
- Separate tax on profit extraction
- Companies House and accounting obligations
Read Limited Company Buy-to-Let and Sole Trader vs Limited Company for Landlords for the wider decision.
What can landlords do about Section 24?
Not every response needs to be structural. The right move depends on the portfolio and the owner.
Typical response options
- Review whether rents still support the property after tax
- Reduce leverage over time where possible
- Hold future purchases in a different structure where appropriate
- Improve record keeping so the rest of the tax position is optimised properly
- Get advice before transferring existing property into a company
Who should worry most in 2026?
| Landlord type | Likely impact |
|---|---|
| Higher-rate taxpayer with large mortgage | High |
| Basic-rate taxpayer with modest mortgage | Lower |
| Cash buyer | Limited |
| Limited company landlord | Different issue set |
Final verdict
Section 24 still matters because it changes the economics of leveraged personal ownership. The landlords who feel it most are not usually the ones with no borrowing. They are the ones with decent rental income, large finance costs and personal tax rates above basic rate.
If that sounds like you, the next step is not panic. It is modelling. Work out the post-tax position under your current structure, compare it with realistic alternatives, and do not assume that a strong gross yield means a strong result after the finance cost rules bite.
FAQ
Does Section 24 apply to all property income?
It mainly affects many individual landlords of residential property. The detailed application depends on the type of income and ownership structure.
Can I still claim other landlord expenses normally?
Yes, many ordinary allowable expenses such as agent fees, repairs and insurance are still deducted in the usual way if they qualify.
Does Section 24 affect furnished holiday lets the same way?
The treatment of furnished holiday lets has changed in recent years and older commentary is often outdated, so check current HMRC guidance for the relevant period.
Is remortgage interest also affected?
Qualifying finance costs can include interest on relevant borrowing, not just the original mortgage, but the factual use of the borrowing matters.
What should I read next?
Read How Much Tax Do Landlords Pay UK?, Allowable Expenses for Landlords UK and Limited Company Buy-to-Let.
This article is for general information only and does not constitute tax or financial advice. For guidance specific to your circumstances, consult a qualified accountant or tax adviser.
