Section 24 Tax: The Complete UK Landlord Guide (2026)

Quick answer

Section 24 of the Finance (No. 2) Act 2015 phased out the ability of individual (unincorporated) landlords to deduct mortgage interest from rental income. Since April 2020, all finance costs are added back to profit and you receive only a basic-rate (20%) tax credit on the interest. This pushes many landlords into higher tax brackets and can create a tax bill even on a loss. Limited companies are unaffected.

Who Section 24 applies to

• Individual landlords letting residential property (sole name or joint)
• Partnerships letting residential property
• Trustees and beneficiaries of certain trusts

Not affected: limited companies, Furnished Holiday Lets (FHLs — until abolition April 2025), commercial property, and companies within a group.

How the calculation works

Old rules (pre-2017): Rental income − mortgage interest − other expenses = taxable profit.

Section 24 rules (from April 2020):

1. Rental income − allowable expenses (excluding finance costs) = taxable profit
2. Tax profit at your marginal rate (20/40/45%)
3. Deduct a tax credit equal to 20% × finance costs (mortgage interest, arrangement fees, overdraft interest on the letting business)

Worked example — higher-rate landlord

• Rent: £18,000
• Mortgage interest: £9,000
• Other expenses: £2,000

Pre-2017: Profit £7,000 → 40% tax = £2,800

Post-2020 (Section 24): Profit £16,000 → 40% tax = £6,400, less 20% × £9,000 = £1,800 credit → £4,600 tax.

Same real profit, £1,800 more tax.

The bracket-creep trap

Because interest is added back to profit, many landlords are pushed from basic to higher rate, or lose their Personal Allowance (tapered above £100,000), Child Benefit (HICBC threshold £60,000), or free childcare.

Workarounds and planning options

• Incorporation — transfer property into a limited company. Companies deduct interest fully. Watch SDLT, CGT and s.162 incorporation relief.
• Ownership restructuring — transfer share to a lower-earning spouse (Form 17 for unequal splits).
• Repayment mortgages — reduce interest over time.
• Pension contributions — extend basic-rate band.
• LLP structures — mixed partnership planning (specialist advice essential).
• Sell high-leverage / low-yield stock — recycle into higher-yielding assets.

Warning: HMRC's Targeted Anti-Avoidance Rule and TIS provisions apply. Take specialist advice before restructuring — this is not DIY territory.

Limited company comparison

Ltd companies suit portfolio landlords with 4+ properties, higher-rate taxpayers, and long-term hold strategies. Single-property basic-rate landlords rarely benefit.

Common mistakes

• Treating the 20% figure as a deduction rather than a credit — it reduces tax due, not taxable profit.
• Forgetting that arrangement fees and broker fees count as finance costs.
• Assuming FHLs escape — the FHL regime is abolished from 6 April 2025.
• Incorporating without modelling SDLT and CGT — the transfer can cost more than the tax saving.
• Ignoring that the credit is capped at property profits + adjusted total income — losses cannot create a refund.

FAQ

Does Section 24 apply to jointly-owned property? Yes, each owner applies it to their share.

Can I still claim wear and tear? No — that ended April 2016. Use replacement of domestic items relief instead.

Do I pay tax if I make a loss? Under Section 24 you can, because interest is added back before the tax is calculated.

Is it worth incorporating for one property? Rarely — the transfer costs usually outweigh the saving.

References

1. HMRC — [Restricting finance cost relief for individual landlords](https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies)
2. Finance (No. 2) Act 2015, Section 24
3. HMRC PIM2054 — Deductions: interest
4. HMRC — [Work out your rental income](https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income)
5. ICAEW — [Section 24 practical guidance](https://www.icaew.com/technical/tax)