Section 24 Tax Changes: What Landlords Need to Know in 2026

# Section 24 Tax Changes: What Landlords Need to Know in 2026

Quick Answer

Section 24 of the Finance (No. 2) Act 2015 stopped landlords deducting mortgage interest as a business expense. Instead, you receive a 20% tax credit on finance costs. This means higher-rate (40%) and additional-rate (45%) taxpayers pay tax on their gross rent and only recover relief at the basic rate. Many leveraged landlords now pay more tax than they make in profit — making portfolio review, restructuring or incorporation essential in 2026.

Key Takeaways

• Mortgage interest is no longer deductible for individual landlords.
• You receive a 20% tax credit on finance costs only.
• Higher-rate taxpayers are hit hardest — taxed on gross rather than net rental income.
• Limited companies are unaffected — they still deduct interest in full.
• Restructuring (incorporation, spousal transfers) can save thousands but has tax and legal costs.

What Has Changed?

Full phase-in complete

Since April 2020, Section 24 has applied in full. There is no transition relief left.

Making Tax Digital for landlords

From April 2026, landlords with gross rent over £50,000 must keep digital records and file quarterly. From April 2027, the threshold drops to £30,000. This makes accurate finance-cost reporting more important than ever.

Higher base-rate band freeze

The income tax thresholds remain frozen until at least 2028. Fiscal drag means more landlords are pushed into the higher-rate band each year, magnifying Section 24's impact.

How Section 24 Works in Practice

The old rules (pre-2017)

You deducted mortgage interest from rental income before tax. Net profit was taxed at your marginal rate.

The new rules (from 2020)

• Calculate rental profit without deducting mortgage interest.
• Pay income tax on that gross profit at your marginal rate.
• Receive a 20% tax credit on the finance cost separately.

Worked example

A landlord with £20,000 rent and £10,000 mortgage interest:

• Old rules: £20,000 − £10,000 = £10,000 profit. Tax at 40% = £4,000.
• New rules: £20,000 taxed at 40% = £8,000. Less 20% × £10,000 = £2,000 credit. Tax due = £6,000.

The same landlord now pays £2,000 more tax on the same property.

Who is affected

• Affected: individual landlords in the higher and additional rate bands.
• Partly affected: basic-rate taxpayers pushed into higher-rate by gross rent.
• Not affected: limited companies, furnished holiday lets (separate rules), and commercial property.

What Landlords Need To Do Now

Step 1: Calculate your true tax position

Run a Section 24 calculator using gross rent. If your tax bill exceeds 35% of your rental profit, you are likely losing money on a leveraged personal-name portfolio.

Step 2: Consider portfolio restructuring

Options include:

Spousal income shift

Transfer a share of the property to a spouse on a lower tax band. Use Form 17 to allocate income unequally for jointly owned property held as tenants in common.

Limited company incorporation

Move properties into a Special Purpose Vehicle (SPV) Ltd. Companies deduct interest in full and pay 19–25% corporation tax. But incorporation triggers Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) on the transfer — unless incorporation relief applies (typically only for genuine partnerships with significant time investment).

Refinance

Reducing leverage reduces Section 24 exposure. Consider paying down loans on highest-yield properties.

Step 3: Plan for Making Tax Digital

From April 2026, landlords above the threshold must keep digital records and submit quarterly. Pick an MTD-compatible accounting tool now.

Step 4: Document finance costs precisely

Keep clear records of:

• Mortgage interest paid each year
• Loan arrangement fees
• Bank charges for the rental property
• Interest on improvement loans

These all qualify for the 20% credit.

Step 5: Take professional advice

A tax adviser specialising in property is worth their fees. Decisions on incorporation are rarely reversible.

Common Mistakes To Avoid

1. Assuming you can still deduct interest

Many landlords still file as if Section 24 doesn't exist. HMRC will catch up.

2. Incorporating without modelling SDLT

The SDLT bill alone can wipe out years of tax savings.

3. Forgetting the additional 3% SDLT surcharge

Transferring a personally-owned property to your own company is treated as a sale for SDLT, with surcharge.

4. Missing Form 17 deadlines

Form 17 income split must be filed within 60 days of the declaration.

5. Ignoring the personal allowance taper

Once your income exceeds £100,000, your personal allowance tapers. Gross rent counted under Section 24 can push you over.

6. Mixing personal and rental finances

Keep a dedicated bank account for rent and expenses. Mixed accounts make MTD harder and audit risk higher.

7. Underestimating CGT on transfer

Transferring to a company crystallises CGT at market value, not historical cost.

Frequently Asked Questions

1. What is Section 24?

A 2015 tax change that restricts mortgage interest relief for individual landlords to a 20% credit.

2. Does Section 24 affect limited companies?

No — companies deduct interest in full.

3. Am I better off incorporating?

Often yes if you are a higher-rate taxpayer with significant leverage — but model SDLT and CGT first.

4. What is a Form 17?

A declaration to HMRC allocating jointly owned property income unequally between spouses.

5. Does Section 24 affect furnished holiday lets?

Not in the same way — FHLs have separate rules, although the regime is changing.

6. What is Making Tax Digital?

A digital filing requirement starting April 2026 for landlords with rent over £50,000 (£30,000 from April 2027).

7. Can I still deduct repairs and management fees?

Yes — Section 24 only affects finance costs.

8. Does Section 24 affect commercial property?

No — only residential lettings.

9. What happens if I make a loss?

Losses still carry forward but cannot be set against other income.

10. Is there any way to reverse incorporation?

Rarely — and only at significant tax cost.

11. Can I deduct loan arrangement fees?

Yes — they count as finance costs for the 20% credit.

12. What records should I keep?

Every mortgage statement, lender letter, and bank charge for at least 6 years.

References

• Finance (No. 2) Act 2015, Section 24 — [legislation.gov.uk](https://www.legislation.gov.uk/ukpga/2015/33/section/24)
• HMRC: Property income manual (PIM2050+)
• HMRC: Making Tax Digital for Income Tax Self Assessment
• ICAEW Taxguides: Section 24 worked examples
• SDLT 3% higher rates legislation

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*Written by the Smart Sleep Property Editorial Team. This article is for general information only and is not a substitute for tax advice. Always consult a qualified tax adviser for your specific circumstances.*