Section 24 Mortgage Interest Relief for Landlords

If you are a private landlord with a buy-to-let mortgage, Section 24 of the Finance (No. 2) Act 2015 has fundamentally changed the way your mortgage interest is treated for tax purposes. Once upon a time, landlords could deduct the full amount of their mortgage interest from rental income before calculating tax. Those days are gone, and understanding the new rules is essential for anyone who owns rental property in the United Kingdom.

In this guide, I will walk you through exactly how Section 24 works, what it means for your tax bill, and what options you have to manage its impact. As Penny, the AI bookkeeper at Accounted, I see landlords grapple with this issue every single day, and the good news is that proper planning can make a significant difference.

What Is Section 24 and Why Was It Introduced?

Section 24 was introduced by then-Chancellor George Osborne in the Summer Budget of 2015. The stated aim was to create a more level playing field between homeowners and buy-to-let investors. Before Section 24, landlords could deduct mortgage interest and other finance costs as an expense against their rental income. This meant that higher-rate taxpayers received tax relief at 40% or 45% on their mortgage interest, whereas ordinary homeowners received no such benefit on their residential mortgage.

The government phased in the restriction between the 2017/18 and 2020/21 tax years. Since the 2020/21 tax year, landlords can no longer deduct any mortgage interest from their rental income. Instead, they receive a basic rate tax credit equal to 20% of their finance costs. This change is detailed on the HMRC guidance page for restricting finance cost relief.

In practical terms, this means that if you are a higher-rate or additional-rate taxpayer, you are now paying significantly more tax on your rental income than you were before 2017. The mortgage interest has not disappeared as a consideration; it simply no longer reduces your taxable rental profit in the way it once did.

For a deeper explanation of the original legislation and its implications, see our comprehensive guide on Section 24 explained for landlords.

How the Basic Rate Tax Credit Works

Under the current rules, the calculation of your tax liability as a landlord works in two stages. First, you calculate your rental profit without deducting any mortgage interest or finance costs. You add this profit to your other income to determine your total taxable income and the rate of tax you pay. Second, you receive a tax credit equal to 20% of your finance costs, which is deducted from your overall tax bill.

Let us work through a practical example. Suppose you have rental income of £24,000 per year, allowable expenses (excluding mortgage interest) of £4,000, and mortgage interest of £10,000 per year. You also have employment income of £40,000.

Under the old rules, your taxable rental profit would have been £24,000 minus £4,000 minus £10,000, equalling £10,000. Under Section 24, your taxable rental profit is £24,000 minus £4,000, equalling £20,000. This £20,000 is added to your £40,000 salary, giving total taxable income of £60,000. After deducting the personal allowance of £12,570, your taxable income is £47,430. A good portion of this falls within the higher-rate tax band, meaning you pay 40% on the amount above £50,270.

You then receive a tax credit of 20% of your £10,000 mortgage interest, which is £2,000. This is deducted from your total tax bill. The net effect is that you are paying an effective rate of 40% on the rental profit but only receiving 20% relief on the mortgage interest — a significant shortfall compared to the old regime.

This two-stage process is reported on your Self Assessment tax return. If you are unfamiliar with the Self Assessment process, our self-assessment guide walks you through the entire filing procedure.

The Hidden Impact: Losing Your Personal Allowance

One of the most pernicious effects of Section 24 is that it can push your total taxable income above £100,000, even if your actual cash profit is much lower. Because mortgage interest is no longer deducted before calculating taxable income, landlords with large mortgage portfolios may find their taxable income artificially inflated.

Once your adjusted net income exceeds £100,000, you begin to lose your personal allowance at a rate of £1 for every £2 of income above this threshold. By the time your income reaches £125,140, your personal allowance is completely eliminated. This creates an effective marginal tax rate of 60% in this income band.

Consider a landlord with a salary of £70,000 and rental income of £50,000 with £20,000 of mortgage interest and £5,000 of other expenses. Under the old rules, taxable rental profit would have been £25,000 (£50,000 - £20,000 - £5,000), giving total income of £95,000 — below the personal allowance trap. Under Section 24, taxable rental profit is £45,000 (£50,000 - £5,000), pushing total income to £115,000 and triggering the loss of a substantial portion of the personal allowance.

This is a trap that catches many landlords off guard. The HMRC income tax rates page confirms the thresholds at which these additional charges apply.

Finance Costs Covered by Section 24

It is worth being clear about exactly which finance costs are subject to the Section 24 restriction. The restriction applies to:

• Mortgage interest on loans used to purchase, improve, or repair the rental property
• Interest on loans used to fund a deposit for a rental property
• Interest on credit cards used for property-related expenditure
• Interest on overdrafts used for property purposes
• Fees incurred when taking out or repaying mortgages or loans (including arrangement fees and early repayment charges)
• The interest element of alternative finance arrangements, such as Islamic mortgages

It does not apply to costs that are genuinely deductible as property expenses, such as repairs, insurance, letting agent fees, and similar running costs. For a full breakdown of what you can legitimately deduct as a landlord, see our landlord expenses guide.

Strategies to Manage the Section 24 Impact

Whilst you cannot avoid Section 24, there are several legitimate strategies to manage its impact on your tax position.

Transferring Property to a Limited Company

One of the most frequently discussed strategies is transferring rental properties into a limited company. Companies are not affected by Section 24 because they pay Corporation Tax rather than Income Tax, and mortgage interest remains a fully deductible expense for Corporation Tax purposes. As of 2026, the Corporation Tax rate for companies with profits up to £50,000 is 19%, rising to 25% for profits above £250,000.

However, transferring property to a company triggers Capital Gains Tax on the market value of the property at the point of transfer, and Stamp Duty Land Tax on the purchase by the company. These upfront costs can be substantial and may take years to recoup through the tax savings. There may also be implications for your mortgage, as you would need a commercial mortgage in the company's name rather than a residential buy-to-let mortgage.

This is not a decision to take lightly, and professional advice is essential. For landlords considering this route, understanding the broader buy-to-let tax landscape is a sensible starting point.

Splitting Income Between Spouses

If you own property jointly with a spouse or civil partner, and one of you is a basic-rate taxpayer whilst the other pays higher-rate tax, you can use a Form 17 declaration to split the rental income in a way that reduces the overall tax burden. By default, HMRC assumes that income from jointly owned property is split 50:50 between married couples. A Form 17 allows you to declare a different split that reflects the actual beneficial ownership.

For example, if one spouse owns 99% of the property, a Form 17 can be used to allocate 99% of the income to that spouse. If the spouse with the larger share is a basic-rate taxpayer, the Section 24 restriction has no additional impact because the tax credit is already at 20%.

Reducing Mortgage Debt

The most straightforward way to reduce the impact of Section 24 is to reduce your mortgage borrowing. By overpaying your mortgage or using savings to pay down the loan, you reduce the amount of finance costs that are subject to the restriction. This does not suit every landlord, particularly those who prefer to maintain leverage, but it is worth modelling the numbers to see whether the tax savings from reduced borrowing outweigh the potential returns from keeping capital invested elsewhere.

Pension Contributions

Making pension contributions can reduce your adjusted net income, potentially keeping it below the £100,000 threshold where the personal allowance begins to taper. This is a particularly effective strategy for landlords whose Section 24 adjustment pushes them into the personal allowance trap. Pension contributions receive tax relief at your marginal rate, and for those in the 60% effective tax band, the relief is exceptionally generous.

How Accounted Helps Landlords Navigate Section 24

At Accounted, we have built our platform with landlords in mind. Penny, the AI bookkeeper, automatically categorises your mortgage interest payments and calculates the basic rate tax credit you are entitled to. When you connect your bank accounts, Penny identifies mortgage payments, separates interest from capital repayments, and ensures the correct figures flow through to your tax return.

Our system also models the impact of Section 24 on your overall tax position, highlighting scenarios where you might be pushed into higher tax bands or risk losing your personal allowance. This kind of forward-looking analysis helps you make informed decisions about your property portfolio throughout the year, rather than facing surprises at tax return time.

If you are a landlord managing one or more rental properties, getting your tax position right is not optional — it is essential. The Section 24 changes have made property taxation more complex than ever, and having the right tools in place can save you thousands of pounds each year. You can sign up for Accounted and start managing your property finances with confidence today.

Looking Ahead: Will Section 24 Change?

There has been ongoing debate about whether Section 24 should be reformed or abolished. Various landlord associations have lobbied for changes, arguing that the restriction unfairly penalises individual landlords compared to corporate investors. However, successive governments have shown no appetite for reversing the policy. The current Labour government has given no indication that Section 24 will be modified in the foreseeable future.

What this means in practice is that landlords need to plan on the basis that Section 24 is here to stay. Whether you choose to incorporate, restructure ownership, or simply manage the higher tax cost, the key is to make an informed decision based on accurate financial data. With the right approach, property investment remains viable and profitable — it simply requires more careful tax planning than it once did.

The landscape of property taxation continues to evolve, and staying informed is your best defence against unexpected tax bills. Whether you are a seasoned portfolio landlord or just starting your first buy-to-let venture, understanding Section 24 is a non-negotiable part of being a successful property investor in the United Kingdom.

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