Last reviewed: June 2026
TL;DR- Section 24 restricts individual landlords from deducting mortgage interest from rental income - instead they receive a 20% basic rate tax credit on finance costs.
- Higher rate (40%) and additional rate (45%) taxpayers are most affected - the restriction increases their effective tax rate on rental income substantially.
- The restriction applies to all residential properties held in individual names - it does not apply to limited company landlords.
- The restriction is fully in force since April 2020 - there is no residual transitional relief remaining.
What Section 24 Does
Section 24 of the Finance Act 2015 (as amended) restricts the tax relief available to individual landlords on finance costs, primarily mortgage interest. Before the restriction was phased in (2017-2020), landlords could deduct all finance costs from rental income as an expense, reducing taxable profit. Since April 2020, the full restriction applies: finance costs are no longer deducted from rental income. Instead, the landlord receives a tax credit equal to 20% of finance costs, applied against their income tax liability.
The effect for a basic rate taxpayer is broadly neutral - they previously deducted finance costs at 20% effective relief and now receive a 20% credit. For higher rate taxpayers (40%), the previous relief was worth 40p per pound of interest; the credit is worth only 20p per pound. For additional rate taxpayers (45%), the previous relief was worth 45p per pound; the credit is worth 20p. The restriction therefore most significantly affects higher and additional rate taxpayer landlords.
How the Calculation Works
Under Section 24, individual landlords:
- Calculate rental income minus allowable expenses (excluding finance costs).
- The resulting figure is the taxable rental profit - taxed at the landlord's marginal rate (20%, 40% or 45%).
- A tax credit of 20% of the finance costs (mortgage interest) is applied against the income tax liability.
A higher rate taxpayer with £20,000 rental income, £12,000 mortgage interest and £3,000 other expenses: taxable profit = £17,000 (£20,000 - £3,000). Income tax at 40% = £6,800. Less 20% credit on £12,000 = £2,400. Net tax = £4,400. Under the pre-Section 24 rules, tax would have been: profit of £5,000 (£20,000 - £12,000 - £3,000) taxed at 40% = £2,000. The Section 24 restriction increased the tax bill from £2,000 to £4,400 in this example - a 120% increase.
Impact on Profit and Viability
For landlords with high mortgage interest costs relative to rental income - typically those with high LTV mortgages on properties in lower-yield areas - Section 24 can result in tax being payable on a "profit" that does not exist in cash terms. A landlord can owe income tax while making a cash loss after mortgage interest. This has driven decisions to sell, raise rents or restructure through limited companies.
Limited Company Alternative
Limited company landlords can still deduct mortgage interest as a business expense before corporation tax. For landlords significantly affected by Section 24, incorporating into a limited company has been a common response. However, the transfer of existing personally held properties into a company triggers stamp duty and capital gains tax at the point of transfer, making incorporation more suitable for new purchases than for existing portfolios. Specialist tax and mortgage advice is required before any incorporation decision.
Frequently Asked Questions
Does Section 24 apply to basic rate taxpayers?
The restriction applies to all individual landlords regardless of tax band, but the practical impact on basic rate taxpayers is minimal. A basic rate taxpayer previously received 20p per pound of relief on mortgage interest; they now receive a 20p credit per pound. The overall tax position is broadly the same. The significant impact is on landlords whose total income (including rental profits) places them in the higher or additional rate band.
Is there a way to avoid Section 24 as an individual landlord?
The restriction cannot be avoided for properties held in individual names. Strategies used to manage the impact include: reducing mortgage debt to lower the finance cost subject to the restriction; refinancing to lower-rate mortgages to reduce the absolute interest cost; selling higher-LTV properties where cash flow is most impacted; purchasing future properties through limited companies; and reviewing whether the overall portfolio is financially viable given the restriction. Each strategy has tax and financial implications requiring specialist advice.
Does Section 24 apply to commercial property?
No. Section 24 applies only to residential property held for letting. Finance costs on commercial properties and commercial mortgages remain fully deductible for individual landlords operating a commercial property business. Mixed-use properties require careful analysis to determine what proportion of finance costs are subject to the restriction.
What happens if Section 24 creates a situation where I pay tax on a loss?
This is referred to colloquially as being "taxed on a loss" - where the effective rental income after mortgage interest is negative but tax is still payable because the taxable profit (before the finance cost deduction) is positive. This is a legal consequence of the restriction. Landlords in this position should review the viability of each property in the portfolio and consider whether selling, refinancing or restructuring would improve the position. Specialist tax advice is essential.
