Section 24 Mortgage Interest Relief Explained
What Is Section 24?
Section 24 of the Finance (No.2) Act 2015 changed how individual landlords can claim relief on their mortgage interest costs. Before Section 24, landlords deducted mortgage interest as an expense, reducing their taxable rental profit. After Section 24, mortgage interest is no longer deductible. Instead, landlords receive a basic rate (20%) tax credit.
The change was phased in from 2017/18 and has been fully in effect since April 2020.
How the Tax Credit Works
- Calculate your rental profit without deducting finance costs
- Calculate your income tax on the full profit (at your marginal rate)
- Calculate 20% of your finance costs
- Deduct this 20% credit from your tax bill
Finance Costs Include:
- Mortgage interest
- Interest on loans to buy furnishings
- Fees incurred when obtaining or repaying mortgages or loans
- Alternative finance returns (Islamic finance)
Who Is Affected Most?
Higher and Additional Rate Taxpayers
The impact is greatest for landlords who pay tax at 40% or 45%. Previously, mortgage interest was effectively relieved at their marginal rate. Now it is relieved at only 20%.
A higher rate taxpayer with £10,000 of mortgage interest loses:
- Old system: £4,000 tax saving (40% × £10,000)
- New system: £2,000 tax credit (20% × £10,000)
- Net loss: £2,000 per year
Landlords Pushed into Higher Bands
Section 24 inflates your taxable income because the full rental income (before finance costs) counts. A landlord who was comfortably in the basic rate band may find their inflated income pushes them into the higher rate band.
The £100,000 Income Trap
If your inflated income exceeds £100,000, you begin losing your Personal Allowance (£1 for every £2 above £100,000). This creates an effective marginal rate of 60% on income between £100,000 and £125,140. Combined with Section 24, this can be devastating.
Mitigation Strategies
1. Incorporate
Limited companies are not affected by Section 24 — they can still deduct mortgage interest in full. However, transferring properties from personal ownership to a company triggers:
- Stamp Duty on the transfer
- Potential CGT on the deemed disposal
- Corporation Tax on profits (25%)
- Different rules for extracting profits from the company
Incorporation works best for landlords who are building a portfolio and can acquire new properties through the company from the outset.
2. Reduce Borrowing
Paying down mortgage debt reduces your finance costs and therefore the Section 24 impact. However, this requires significant capital.
3. Shift Income
If you have a spouse or civil partner who is a lower-rate taxpayer, transferring property ownership (or a share of it) can reduce the overall tax burden. This must be a genuine transfer — not just a paper arrangement.
4. Maximise Other Deductions
Claim every allowable expense to reduce your taxable rental profit as much as possible.
Track your Section 24 position with Accounted — Penny calculates the mortgage interest tax credit correctly as part of your tax estimate.
Section 24 costs landlords billions. Make sure you are managing its impact. Sign up for Accounted and let Penny handle the complex calculations.
Tax & Compliance Specialists
Our tax specialists have decades of combined experience in UK sole trader and small business taxation, MTD compliance, and HMRC submissions. All content is reviewed against current HMRC guidance before publication and updated quarterly to reflect legislative changes.
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