What is Section 24?
Section 24 refers to the rules that stop individual landlords deducting mortgage interest from their rental income. Instead, they receive a tax credit worth 20% of the interest, which leaves higher-rate taxpayers paying more tax. Properties held in a limited company are treated differently.
Read more in our guide: Financial pressure on landlords
Key facts at a glance
| Item | Detail |
|---|---|
| Legislation | Section 24 of the Finance (No. 2) Act 2015 |
| Phased in | From 2017 to 2018, fully in force from 2020 to 2021 |
| Relief given | A tax credit of 20% of finance costs (22% from April 2027) |
| Credit is limited to the lowest of | Finance costs, property profits, or adjusted total income above the personal allowance |
| Unused credit | Carried forward to later years |
| Who it affects | Individuals, partnerships and most trusts letting residential property |
| Not affected | Limited companies and commercial property |
How the Mortgage Interest Restriction Works
Before April 2017, landlords deducted mortgage interest from rental income like any other cost, so a higher-rate taxpayer effectively got 40% relief. Section 24 replaced that deduction with a basic-rate tax credit. Your rental profit is now worked out before finance costs, which makes your taxable income higher, and the credit then reduces the tax.
The higher taxable income can have knock-on effects: pushing you into the higher-rate band, reducing your personal allowance once income passes £100,000, triggering the High Income Child Benefit Charge, and leaving less of your basic-rate band for capital gains.
A Worked Example
A higher-rate taxpayer has rent of £30,000, running costs of £5,000 and mortgage interest of £15,000.
| Before Section 24 | Under Section 24 | |
|---|---|---|
| Taxable rental profit | £10,000 | £25,000 |
| Tax at 40% | £4,000 | £10,000 |
| Less 20% finance cost credit | n/a | −£3,000 |
| Tax to pay | £4,000 | £7,000 |
The landlord's tax has risen by 75% on the same cash profit. When interest rates rose sharply in 2022 and 2023, some landlords found they owed tax even though the portfolio made little or no cash profit.
What Changes From April 2027
The Autumn Budget 2025 announced separate income tax rates for property income from April 2027: 22% basic, 42% higher and 47% additional. Finance costs will be relieved at 22% rather than 20%. In the example above, the tax would become £10,500 less a £3,300 credit, or £7,200. Furnished holiday lets lost their separate treatment from April 2025, so they are also subject to the restriction now.
How Landlords Are Responding
- Paying down debt to reduce the interest that only attracts basic-rate relief.
- Incorporating, moving properties into a limited company. This is a disposal for CGT and the company pays SDLT, so it rarely suits an established portfolio without specialist advice.
- Selling the most highly geared properties to reduce interest costs, or selling the whole portfolio. Section 24 is one of the most common reasons landlords give us for deciding to sell.
- Reviewing ownership so more income falls to a lower-rate spouse.
Official Sources and Further Reading
General information for landlords in England, checked against official sources in October 2026. It is not tax, legal or financial advice: speak to a qualified accountant or solicitor about your own circumstances.
Frequently Asked Questions
Section 24 refers to the rules that stop individual landlords deducting mortgage interest from their rental income. Instead, they receive a tax credit worth 20% of the interest, which leaves higher-rate taxpayers paying more tax. Properties held in a limited company are treated differently.
Individual landlords get a tax credit worth 20% of their mortgage interest and other finance costs instead of deducting them from rental income. From April 2027 the credit rises to 22%.
No. Companies can still deduct finance costs in full from their rental profits before Corporation Tax.
Because their rental profit is taxed at 40% or 45% before the interest is taken into account, but they only get 20% back as a credit.
Yes. Where the credit is limited, for example because profits are low, the unused part is carried forward to later years.
Thinking About Selling Your Portfolio?
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