Section 24: How Mortgage Interest Is Taxed for Landlords, With Worked Examples
Since 6 April 2020 an individual landlord cannot deduct mortgage interest from rental income. Instead you get a tax credit worth 20 percent of the interest, whatever rate of tax you pay. That rule, usually called section 24 after the section of the Finance Act 2015 that introduced it, costs a higher rate taxpayer half their relief and can push a basic rate taxpayer into the higher band. From 6 April 2027 property income gets its own tax rates of 22, 42 and 47 percent, and the credit rises to 22 percent. This guide explains how the restriction works, who it applies to, and what it costs with three worked examples.
In this guide
How the restriction works Who it applies to Worked examples, 2026 to 2027 The limit on the credit, and carrying it forward From April 2027: 22, 42 and 47 percent What landlords do about it Frequently asked questions SourcesHow the restriction works
HMRC's guidance puts it in one line: from 6 April 2020, income tax relief on all residential property finance costs is restricted to the basic rate of income tax. In practice that means three steps every year:
- Work out the rental profit without deducting finance costs. Rent less allowable expenses such as repairs, agent fees and insurance, but not mortgage interest. See the deductible expenses guide.
- Tax that profit at your marginal rate, alongside your other income.
- Deduct a tax reduction of 20 percent of the finance costs from the tax bill.
Finance costs include mortgage interest, interest on loans to buy furnishings, and fees for arranging or ending a mortgage, along with alternative finance returns. Capital repayments were never deductible and still are not. The restriction was phased in over four tax years from April 2017, and has applied in full since 2020 to 2021.
Who it applies to
| Landlord | Section 24 applies? | How finance costs are relieved |
|---|---|---|
| Individual letting residential property | Yes | 20 percent tax reduction; 22 percent from 2027 to 2028 |
| Joint owners and partnerships of individuals | Yes, each on their share | 20 percent tax reduction on each share |
| Limited company | No | Deducted as an expense for Corporation Tax |
| Commercial property | No | Deducted as an expense |
HMRC, Income Tax when you rent out a property: working out your rental income (updated 19 March 2025), checked 3 October 2026.
The rule applies to residential lets owned personally. Companies are outside it, which is the main reason landlords have incorporated since 2017; moving property into a company is a sale for capital gains and stamp duty purposes, so it is rarely cheap for an existing portfolio. See the capital gains tax guide and stamp duty guide before considering it.
Worked examples, 2026 to 2027
Three landlords each receive £15,000 of rent, pay £8,000 of mortgage interest and £2,000 of other allowable costs, so the real profit is £5,000. The examples use the 2026 to 2027 personal allowance of £12,570 and higher rate threshold of £50,270 for England.
| Basic rate landlord, salary £20,000 | Crosses into higher rate, salary £40,000 | Higher rate landlord, salary £60,000 | |
|---|---|---|---|
| Profit taxed (before interest) | £13,000 | £13,000 | £13,000 |
| Tax on that profit | £2,600 (all at 20%) | £3,146 (£10,270 at 20%, £2,730 at 40%) | £5,200 (all at 40%) |
| Less 20% credit on £8,000 interest | £1,600 | £1,600 | £1,600 |
| Tax due | £1,000 | £1,546 | £3,600 |
| Tax if interest were deductible | £1,000 | £1,000 | £2,000 |
| Extra cost of section 24 | £0 | £546 | £1,600 |
| Tax as a share of the £5,000 real profit | 20% | 31% | 72% |
Our calculation. Ignores the personal savings and dividend allowances and assumes no other income or reliefs.
The pattern holds generally: a landlord who stays within the basic rate band loses nothing; a higher rate landlord pays tax on interest they never kept; and a basic rate landlord whose gross rent, not profit, takes them over £50,270 pays 40 percent on part of it. The same effect can push income past the £100,000 point at which the personal allowance starts to be withdrawn. Highly geared higher rate landlords can face a tax bill larger than their real profit when interest rates rise.
The limit on the credit, and carrying it forward
The 20 percent credit is capped. It is worked out on the lowest of three figures: the finance costs for the year (plus any brought forward), the property profits for the year, and your adjusted total income above the personal allowance. Any finance cost that does not get relief because of the cap is carried forward to the next year's property business. In a year when repairs wipe out the profit, the unused interest is not lost; it waits. Keep the figure in your records, and in your software once you are in Making Tax Digital.
From April 2027: 22, 42 and 47 percent
The government announced at Budget 2025 that from 6 April 2027 property income will have its own rates: a property basic rate of 22 percent, a property higher rate of 42 percent and a property additional rate of 47 percent, two points above the main rates. Finance cost relief will be given at the property basic rate, 22 percent, through the same tax reduction.
| Same higher rate landlord | 2026 to 2027 | 2027 to 2028 |
|---|---|---|
| Tax on £13,000 of profit | £5,200 at 40% | £5,460 at 42% |
| Credit on £8,000 interest | £1,600 at 20% | £1,760 at 22% |
| Tax due | £3,600 | £3,700 |
Rates from the GOV.UK policy paper "Changes to tax rates for property, savings and dividend income", checked 3 October 2026. Our calculation.
For this higher rate landlord the change costs another £100 a year. For a basic rate landlord it is closer to neutral, because both the rate and the credit rise by two points; the extra tax falls on the profit above the interest. The rental yield calculator shows net yield after tax, and the running-cost guide lists the other annual costs.
What landlords do about it
- Reduce debt. Every £1,000 of interest saved leaves £800 more after tax at any tax rate, because the credit given up is only 20 percent.
- Review ownership. Moving a share of a property to a spouse or civil partner who pays basic rate can lower the rate on the profit; get advice, because the beneficial interest must actually change.
- Use a company for new purchases. Interest is deductible against Corporation Tax, but extracting profits brings dividend tax, and lenders price company mortgages differently.
- Claim everything else. Section 24 affects interest only; repairs, licence fees, the database fee and certificate costs remain fully deductible. The certificate cost calculator totals the certificates.
Put the 31 January and 31 July payment dates in the compliance calendar; higher bills from section 24 also mean larger payments on account.
Frequently asked questions
What is section 24 for landlords?
The rule, from section 24 of the Finance Act 2015, that stops individual landlords deducting mortgage interest and other finance costs from residential rental income. Since 6 April 2020 they get a tax reduction of 20 percent of the costs instead.
Does section 24 apply to limited companies?
No. A company deducts mortgage interest as an expense for Corporation Tax. Section 24 applies to individuals, including joint owners and partnerships of individuals, letting residential property.
How much extra tax does section 24 cost a higher rate taxpayer?
Half the relief on the interest. On £8,000 of interest a higher rate landlord pays £1,600 more tax a year than if the interest were deductible, because tax is charged at 40 percent and the credit is only 20 percent.
What changes in April 2027?
Property income will be taxed at 22, 42 and 47 percent from 6 April 2027, and the finance cost tax reduction will rise to 22 percent, as announced at Budget 2025.
What happens to interest I cannot get relief for?
The credit is limited to the lowest of finance costs, property profits and adjusted total income above the personal allowance. Any unrelieved finance cost is carried forward to later years of the same property business.
Sources
HMRC: Income Tax when you rent out a property: working out your rental income; GOV.UK: Changes to tax rates for property, savings and dividend income and its technical note; Finance (No. 2) Act 2015 section 24. All checked 3 October 2026. See the methodology.