What Section 24 actually changed

Section 24 of the Finance Act 2015 (phased in from 2017, fully in force since April 2020) rewired how individual landlords are taxed on residential property. Before: you deducted 100% of mortgage interest from rental income as a business expense, then paid tax on the profit that remained — exactly as any business deducts its costs. Now: mortgage interest is no longer deductible from rental income; instead you pay tax on your full rental income (less non-finance costs like letting fees, repairs and insurance), and separately receive a tax credit worth 20% of your finance costs applied against the final bill. Finance costs caught by the restriction aren’t just mortgage interest — they include interest on loans to buy furnishings, and arrangement and broker fees on those loans too. The mechanism sounds technical, but the effect is simple and deliberate: it removes the full higher-rate relief landlords used to get on their borrowing, raising the tax on leveraged property. Former Chancellor George Osborne framed it as levelling the field between landlords and ordinary homebuyers; landlords experienced it as a structural tax rise.

The worked example: the £1,800 hit and the 62% rate

That 62% figure is the heart of why Section 24 changed landlord behaviour so dramatically: the tax is levied on turnover-like income while relief is capped at basic rate, so the more you borrow, the more punishing the gap. It’s also why interest-only BTL — long the norm for cashflow — now carries a tax sting it didn’t before, and why the limited company route (which escapes all of this) has become the default for new higher-rate borrowing.

Who’s affected — and who isn’t

The hidden trap: being pushed into a higher band

This is the part that catches basic-rate landlords who assume they’re safe. Because Section 24 makes you declare your full rental income as taxable (rather than the smaller post-interest profit), your total taxable income on paper is higher — and that inflated figure can tip you over the £50,270 higher-rate threshold (frozen for 2026/27, alongside the £12,570 personal allowance), even though your real income hasn’t moved. Once part of your income crosses into higher-rate territory, that slice loses the neat basic-rate/credit symmetry and starts attracting the Section 24 penalty. So a landlord who was comfortably basic-rate under the old rules can find themselves partly higher-rate under the new ones, purely because of how the income is now counted. It’s a genuinely counterintuitive effect — your taxable income rises without your actual income changing — and it’s the single most common way landlords get an unpleasant surprise at self-assessment. Anyone near the threshold with a mortgaged rental should model this before the tax year closes, ideally with an accountant.

How to claim the 20% credit

Mechanically it’s straightforward, done through Self Assessment. You report your full rental income and deduct your allowable non-finance costs (letting agent fees, repairs, insurance, council tax where you pay it, ground rent, etc.) to reach your taxable rental profit. Your mortgage interest goes in a separate box as a finance cost, and HMRC applies the 20% credit automatically against your tax bill — you don’t deduct it from income yourself. Key points: only the interest portion of your mortgage payment qualifies, never the capital repayment, so keep your annual mortgage interest statements; the credit is capped at 20% of the lower of your finance costs, your property profits, or your total income above the personal allowance; and unused credit can’t be carried forward or back in the way some reliefs can (though finance costs that can’t be relieved in-year can be carried forward to future years’ property income). Accurate records — mortgage statements showing interest paid, plus all expense receipts — make this painless; HMRC’s own guidance sits on GOV.UK.

The legal ways landlords reduce the hit

There are legitimate strategies, but every one has trade-offs and none is one-size-fits-all — this is where a qualified tax adviser earns their fee, and where the mortgage side often needs a broker too:

• Incorporate — hold property in a limited company. Companies are exempt from Section 24 and deduct interest in full against corporation tax — the big structural fix, and why most new higher-rate BTL now goes this way. But transferring existing properties triggers CGT and stamp duty, and note incorporation relief is no longer automatic from April 2026 and must be actively claimed — so this is specialist-advice territory, covered in depth in our company BTL guide.
• Transfer a share to a lower-earning spouse. Shifting beneficial ownership to a basic-rate partner uses their lower band — but it requires a Form 17 filed with HMRC (and a declaration of trust) to be valid for tax.
• Reconsider your borrowing. Lower leverage means less restricted interest; some landlords use a remortgage or capital to reduce mortgage balances, though this ties up cash — a balance-sheet decision, not a reflex.
• Review the portfolio. Some landlords prune the least tax-efficient properties, or move toward lower-geared holdings; others reassess interest-only vs repayment mixes.
• Maximise legitimate non-finance costs. Section 24 only restricts finance costs — ordinary allowable expenses (repairs, management, safety certificates) remain fully deductible, so claiming everything you’re entitled to matters more than ever.

The recurring theme: the tax problem is HMRC’s rulebook, but the solutions frequently involve mortgages — refinancing, company products, portfolio restructuring — so the strongest approach pairs a tax adviser on the numbers with a whole-of-market broker on the lending. Neither alone sees the whole board.

Section 24 & landlord tax relief: FAQs

Last updated: July 2026 (2026/27 tax year). Tax rules and thresholds verified at the time of writing and subject to change; not a substitute for professional tax advice.