How Section 24 Mortgage Interest Relief Affects UK Landlords
This guide explains how HMRC Section 24 rules restrict mortgage interest tax relief for individual UK landlords, detailing the calculation, the band-pushing effect, and upcoming reforms under the Finance Bill 2025-26.
How does the Section 24 mortgage interest relief restriction affect higher-rate landlords in the UK? Individual landlords in the higher-rate tax band no longer deduct mortgage interest from their rental income before tax is calculated. Instead, they receive a flat tax reduction that covers only a portion of their total mortgage interest costs.
Key Takeaways: How Section 24 Impacts Your Property Tax
- Individual landlords are restricted to a flat 20% basic-rate tax credit on their finance costs, leaving higher-rate taxpayers with an unmitigated 20% tax gap on their mortgage interest.
- Calculating income tax on gross rental profit (before mortgage interest deductions) artificially inflates net income, pushing many basic-rate landlords into the higher-rate tax bracket.
- The Finance Bill 2025-26 introduces new property tax rates from April 2027, raising the higher rate to 42% and adjusting the Section 24 tax credit up to 22%.
As a higher-rate landlord, how does the Section 24 mortgage interest tax credit affect my rental profit?
Section 24 directly reduces your cash profit by imposing a tax mismatch between your marginal tax rate and your interest relief rate. Under current rules, a higher-rate landlord is taxed at 40% on their rental income but only receives a 20% tax credit on the interest paid.
This rules mismatch means you pay an extra 20p of tax for every £1 of mortgage interest you pay. The gap will widen starting in April 2027, as higher-rate property tax rises to 42% while the tax credit only rises to 22%.
What is Section 24 and who does it apply to?
Section 24 refers to the restriction of tax relief on finance costs legislated under Section 274A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). This law removes the ability of individual residential landlords to deduct finance costs from their rental income before calculating tax.
The restriction applies to mortgage interest, interest on loans used to buy or improve property, and loan arrangement or broker fees. It applies to individual residential landlords, partnerships, and trusts holding residential property.
This restriction does not apply to commercial property or houses owned by limited companies, which can still deduct finance costs in full. Furnished Holiday Lets (FHLs) lost their exemption on 6 April 2025 and are now subject to the Section 24 restrictions.
How is the Section 24 tax credit calculated?
HMRC calculates the tax relief as a 20% tax reduction on the lowest of three specific figures determined during the self-assessment tax year. This calculation mechanism ensures that the relief never exceeds your actual tax liability or property profits.
Under Section 274A of ITTOIA 2005, the credit is strictly capped at the lowest of total finance costs paid in the tax year, net rental property profits, or your total taxable income that exceeds your personal allowance.
Worked Example: Section 24 Tax Bill comparison (2026/27)
The table below demonstrates how Section 24 inflates the tax bill of a higher-rate landlord on a rental property generating £15,000 of income with £5,000 of mortgage interest costs.
| Tax Component | Old Rules (Pre-2020) | Section 24 Rules (2026/27) |
|---|---|---|
| Gross Rental Income | £15,000 | £15,000 |
| Mortgage Interest Expense | £5,000 (Fully deducted) | Not deductible as an expense |
| Taxable Rental Profit | £10,000 | £15,000 |
| Income Tax at 40% | £4,000 | £6,000 |
| Less: 20% Tax Credit | Not applicable | -£1,000 (20% of £5,000) |
| Final Income Tax Bill | £4,000 | £5,000 |
| Effective Tax Rate on £10k Profit | 40% | 50% |
What is the Section 24 'Band-Pushing Effect'?
The band-pushing effect occurs when gross rental income is added to your personal income, driving your total declared taxable income into a higher tax bracket. Because you cannot deduct your mortgage interest first, your declared taxable income is artificially inflated.
This adjustment can push a basic-rate taxpayer into the higher-rate bracket, or a higher-rate taxpayer into the additional-rate bracket. Even if your net cash pocket remains modest, you face higher rates on all other income forms, such as salaries.
How will the April 2027 property tax changes affect Section 24?
The Finance Bill 2025-26 introduces structural changes to property tax rates on 6 April 2027, modifying both the tax bands and the offsetting credit. Rather than aligning with general income tax, property income will follow a separate rate card.
| Tax Band | Current Property Tax Rate | Property Tax Rate from April 2027 | Section 24 Credit Rate |
|---|---|---|---|
| Basic Rate | 20% | 22% | 22% (from April 2027) |
| Higher Rate | 40% | 42% | 22% (from April 2027) |
| Additional Rate | 45% | 47% | 22% (from April 2027) |
While the mortgage tax credit rises to 22% in April 2027, higher-rate landlords still face a 20% tax gap on interest bills. Additionally, personal allowances will be applied to your non-property incomes first, pushing more property profits into higher tax brackets.
How can landlords mitigate the impact of Section 24?
Landlords can use several legitimate methods to minimise the impact of Section 24 restructures on their rental property investment portfolios. Any strategic change must be carefully planned in alignment with UK tax rules.
- Transfer property ownership to a limited company, where mortgage interest remains fully deductible as a business expense against Corporation Tax.
- Split property ownership with a spouse or civil partner who is in a lower tax bracket to utilise their unused basic-rate tax bands.
- Overpay your buy-to-let mortgage balances to reduce your total interest liability and exposure to the capped tax credit.
- Maximise claims on other fully deductible property expenses, such as letting agent fees, structural repairs, and landlord insurance.
Are Furnished Holiday Lets (FHLs) still exempt from Section 24?
No, Furnished Holiday Lets lost their special tax status on 6 April 2025. They are now treated the same as standard residential buy-to-let properties and are subject to the same Section 24 interest relief restrictions.
Does Section 24 apply to limited company buy-to-lets?
No, Section 24 does not apply to corporate entities. Buy-to-let properties held within a limited company can still deduct 100% of their mortgage interest and finance costs from rental income before calculating corporate taxes.
Can I still deduct property repairs and letting agent fees in full?
Yes, standard operating expenses such as letting agent fees, property maintenance, buildings insurance, and utility bills remain fully deductible from your gross rental income before income tax is calculated.
How does the personal allowance restriction work under the new April 2027 rules?
Under the Finance Bill 2025-26 rules effective from April 2027, personal income tax allowances must be set against your non-property incomes first. This means your rental profit is more likely to be taxed entirely at higher rates.