If you’re a buy-to-let landlord with a mortgage, you’ve probably heard of Section 24 – even if you’re not entirely sure how it affects your tax bill.
It’s one of the most common things landlords ask us about, and it’s easy to see why. For higher-rate taxpayers especially, it can mean paying significantly more tax on rental income than you’d expect once your mortgage costs are factored in.
Section 24 has been fully in force since April 2020, but further changes are on the way that make it even more important to understand. From April 2027, property income will be taxed at higher rates, and the way your personal allowance is allocated will change too.
Read on for the full breakdown.
How Section 24 Works
Before Section 24 came in, landlords could deduct mortgage interest and other finance costs from their rental income before calculating tax. If you received £15,000 in rent and paid £5,000 in mortgage interest, you’d pay tax on £10,000.
That changed between April 2017 and April 2020, when Section 24 of the Finance (No. 2) Act 2015 was phased in. Since April 2020, finance costs can no longer be deducted when working out your rental profit. Instead, you pay tax on your rental profit before finance costs, and then receive a basic-rate tax reduction.
How the Tax Reduction Is Calculated
The relief isn’t simply 20% of your mortgage interest – there’s a cap. HMRC calculates the reduction as 20% of the lowest of the following three figures:
- Your total residential finance costs: Mortgage interest, loan arrangement fees, overdraft interest, and any other borrowing costs connected to the letting.
- Your property business profits: Rental income minus allowable non-finance expenses (repairs, agent fees, insurance, etc.).
- Your adjusted total income above the personal allowance: Your total taxable income minus your personal allowance.
The reduction can’t create a tax refund. If you can’t use all of it in one year, the unused portion carries forward to the next.
For basic-rate taxpayers, this usually works out roughly the same as the old system – you’re paying 20% and getting 20% relief. But for higher and additional-rate taxpayers, the gap between what you pay and what you get back is where Section 24 really bites.
Worked Examples
Numbers make this much clearer. In both examples below, we’re assuming the taxpayer’s personal allowance has already been used by other income and that all rental income falls within a single tax band.
Basic-Rate Taxpayer
- Rental income: £15,000
- Allowable expenses (non-finance): £2,000
- Rental profit before finance costs: £13,000
- Mortgage interest: £5,000
Under the old rules, you’d have deducted the £5,000 from your profit and paid 20% tax on £8,000 – a bill of £1,600.
Under Section 24, you pay 20% tax on the full £13,000 profit – that’s £2,600. You then receive a 20% tax reduction on the £5,000 finance costs, which is £1,000. Your final bill is £2,600 minus £1,000 = £1,600. The same as before.
Higher-Rate Taxpayer
- Salary: £55,000 (already in the higher-rate band)
- Rental profit before finance costs: £13,000 (same property as above)
- Mortgage interest: £5,000
Under the old rules, you’d have paid 40% on £8,000 of profit – a bill of £3,200.
Under Section 24, you pay 40% on the full £13,000 – that’s £5,200. The tax reduction is still only 20% of £5,000, which is £1,000.
Your final bill on the rental income is £5,200 minus £1,000 = £4,200.
That’s £1,000 more than you’d have paid under the old system. The bigger the gap between your tax rate and the 20% relief, the more Section 24 costs you.
Who Section 24 Affects – and Who It Doesn’t
Section 24 applies to individual landlords who own residential rental property in their own name, including joint owners and married couples.
It covers all residential finance costs – not just mortgage interest, but loan arrangement fees, overdraft interest, and any other borrowing connected to the letting.
There are some important exceptions:
- Limited companies: Not affected. If you own property through a company, mortgage interest is still a deductible business expense and you pay Corporation Tax on net profit. This is one of the main reasons some landlords have incorporated their portfolios since 2017.
- Commercial property: Not covered. Section 24 is specific to residential lettings.
- Furnished holiday lets: Used to be exempt, but the FHL regime was abolished from April 2025. If you run a holiday let, Section 24 now applies to you too.
The Phantom Income Problem
One of the less obvious effects of Section 24 is that it can push you into a higher tax band – or reduce your entitlement to certain allowances – even though your actual profit hasn’t changed.
Here’s why. Under the old system, your taxable rental income was your profit after mortgage costs. Under Section 24, HMRC uses the higher figure – your profit before finance costs – when working out your total income for the year. That can have knock-on effects:
- Higher tax bands: It can push basic-rate taxpayers into the higher-rate band, meaning they lose the advantage of paying 20% on some of their income.
- Personal allowance taper: If it takes your income over £100,000, you start losing your personal allowance – £1 for every £2 above the threshold.
- Child Benefit charge: If you or your partner receive Child Benefit and either of you has adjusted net income over £60,000, it can trigger the High Income Child Benefit Charge.
In other words, Section 24 can make you look wealthier on paper than you are in practice – and HMRC taxes you on that basis.
How to Report It on Your Tax Return
If your gross property income is more than £1,000 a year, you may need to report it to HMRC, usually through Self Assessment if you need to complete a tax return. The finance cost relief is reported through the UK Property supplementary page (SA105).
The key boxes to know are:
- Box 44: Enter your total residential property finance costs for the year (mortgage interest and other qualifying borrowing costs).
- Box 45: Enter any unused finance costs carried forward from the previous year.
HMRC calculates the 20% tax reduction automatically from the figures you provide – you don’t need to work it out yourself. But the figure in Box 44 needs to be accurate, so keep your mortgage statements and loan agreements on file.
What’s Changing From April 2027
Section 24 itself isn’t changing, but the tax rates it interacts with are – and under the announced changes, things get more expensive for landlords again.
New Property Income Tax Rates
From 6 April 2027, rental profit is set to be taxed at new separate property income rates rather than the standard income tax bands:
- Basic rate: 22% (currently 20%)
- Higher rate: 42% (currently 40%)
- Additional rate: 47% (currently 45%)
There is a small consolation: the finance cost relief rate is also set to rise from 20% to 22%, in line with the new property basic rate.
So the tax reduction on your mortgage interest will be slightly more generous. But for higher and additional-rate landlords, the gap between what you pay and what you get back still widens.
Personal Allowance Allocation
From 2027/28, the way reliefs and allowances are applied is also changing.
Under the announced rules, general allowances and reliefs will be set against other income first, before being applied to property, savings, or dividend income.
If your salary or pension already uses up your personal allowance, your entire rental profit will be taxable at the new property rates with nothing to shelter it.
Making Tax Digital for Landlords
If your qualifying income from rental property and self-employment is over £50,000, Making Tax Digital for Income Tax applies from 6 April 2026, with the first quarterly update due by 7 August 2026.
The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. If you haven’t signed up yet, this needs sorting out.
What Can Landlords Do About Section 24?
Section 24 is here to stay, and with the April 2027 changes on the horizon, it’s worth considering your options. Every landlord’s situation is different, but there are some common areas worth exploring with your accountant:
- Incorporation: Owning property through a limited company avoids Section 24, because mortgage interest stays as a deductible expense for Corporation Tax. But incorporating involves stamp duty, potential CGT, and mortgage refinancing – it’s a big decision that needs proper analysis. We’ve written more in our guide to whether landlords should set up a limited company.
- Pension contributions: Increasing your contributions reduces your taxable income, which can bring you back below thresholds that Section 24 has pushed you over.
- Maximising expenses: Making sure you’re claiming every allowable expense – agent fees, repairs, insurance, and other running costs – helps reduce your taxable profit.
- Transferring ownership between spouses: If one partner is a basic-rate taxpayer and the other is higher-rate, transferring a share of the property to the lower earner can reduce the overall tax bill.
None of these should be done without professional advice, because the tax and legal implications depend on your circumstances.
How Double Point Can Help
Section 24 looks straightforward on the surface but gets complicated quickly – especially once you factor in the April 2027 rate changes, the personal allowance reordering, and MTD obligations on top.
At Double Point, we work with landlords to make sure you’re claiming everything you’re entitled to, your Self Assessment is accurate, and your wider tax strategy reflects where the rules are heading.
Whether you’ve got one property or a full portfolio, book a free consultation with us and we’ll talk you through your options.