Section 24 is the tax rule that has changed buy-to-let maths more than any other in the last decade. It did not raise a tax rate; it changed what counts as profit — and for a mortgaged higher-rate landlord, that can be worth thousands a year on the same rent, mortgage and property.
This guide explains how Section 24 works, who it hits and who it does not, with worked examples to check against your own figures. It is general information, not personal tax advice: because Section 24 interacts with your total income, tax band and ownership route, take advice from a property accountant before restructuring anything. Read it alongside the limited-company guide, which compares both ownership routes on the same facts.
What Section 24 is
Section 24 of the Finance (No. 2) Act 2015 restricted the tax relief individual landlords can claim on residential property finance costs — mainly mortgage interest. Before the change, an individual landlord deducted mortgage interest as a business cost: taxable profit was rent minus all costs, including interest.
Since 2020/21, when the change took full effect, individual landlords cannot deduct finance costs when calculating taxable rental profit. Instead they receive a tax reduction — HMRC's "basic-rate tax reduction", commonly called a 20% tax credit — equal to 20% of qualifying finance costs, deducted from the final tax bill.
The distinction between a deduction and a credit is the whole story. A deduction saves tax at your marginal rate (40p or 45p in the pound for higher and additional-rate taxpayers); a 20% credit saves 20p whatever your rate. For a basic-rate taxpayer the two match, which is why Section 24 barely touches them. Above the basic rate, the gap is tax paid on money that went to the lender.
Phased in from 2017/18, the restriction took full effect in 2020/21. Model the full restriction.
How the calculation works, step by step
Work through it in this order:
1. Taxable rental profit without finance costs. Deduct all allowable expenses except finance costs — management, insurance, repairs, certificates, accountancy, service charges and ground rent. Mortgage interest is not deducted here. 2. Add that profit to your other income. The inflated profit figure — inflated because interest has not been deducted — is what determines your tax band (see the hidden effects below). 3. Calculate tax at your normal rates on total income, including that rental profit. 4. Deduct the finance-cost tax reduction. The reduction is 20% of the lowest of: (a) total finance costs (plus unused costs carried forward); (b) property business profits; (c) adjusted total income above the personal allowance. Usually (a) is lowest, so the credit is simply 20% of mortgage interest — but the cap matters in loss years, as example 3 shows. 5. Carry forward what you cannot use. Finance costs that cannot be relieved in one year carry forward indefinitely. They do not create a refund, and cannot reduce tax on non-property income below zero.
Qualifying finance costs include mortgage interest, interest on other loans for the property (including a loan to buy furnishings for the let), and mortgage arrangement or renewal fees. They do not include capital repayments, which have never been deductible, or commercial property costs, which sit outside Section 24.
On your self-assessment return, mortgage interest goes in the finance costs box (Box 44, SA105), not in allowable expenses. HMRC then calculates the 20% reduction. Entering interest as an ordinary expense is the most common Section 24 filing error.
Who Section 24 hits — and who it does not
Hit: individual landlords, and partnerships of individuals, letting residential property personally, who pay tax above the basic rate or are pushed above it by the inflated profit figure. The harder you are geared, the harder it hits.
Barely touched: basic-rate taxpayers. The 20% credit matches their 20% rate, so the interest part is roughly neutral — unless the inflated profit pushes them into the higher band.
Unaffected: limited companies. A company deducts mortgage interest in full before corporation tax, because Section 24 applies only to individuals. This is why the limited-company route dominates portfolio tax planning — and why transferring existing personal properties into a company is expensive, as the limited-company guide explains.
Unaffected: landlords with no mortgage. With no finance costs, there is nothing to restrict.
Outside scope: commercial property lettings, where finance costs remain fully deductible. Furnished holiday lets previously sat outside Section 24 too, but the furnished holiday lettings regime was abolished from April 2025 — confirm the treatment of any former furnished holiday let with a specialist adviser before filing.
Worked example 1: the higher-rate landlord
Use the same property facts as the limited-company guide:
- Purchase price £200,000; loan £150,000 (75% LTV), interest-only at 5%: annual interest £7,500
- Rent £1,200 a month, £14,400 a year
- Other allowable costs: £1,800 a year
- Real cash profit before tax: £14,400 − £1,800 − £7,500 = £5,100
Before Section 24, taxable profit would have been £5,100 and tax at 40% £2,040, leaving £3,060 after tax.
Under Section 24, taxable rental profit is £14,400 − £1,800 = £12,600. Tax at 40% is £5,040, less the 20% credit on interest (£1,500), giving net tax of £3,540 and after-tax cash of £1,560.
Section 24 therefore costs this landlord £1,500 a year — exactly 20% of the interest, the gap between 40% relief and 20% relief. Over five similar properties, that is £7,500 a year. It is also why the same property, held in a company with profit retained, leaves £4,131 after corporation tax at 19% in the limited-company guide's example.
Worked example 2: the basic-rate landlord
On the same property, a basic-rate landlord pays 20% tax on £12,600 (£2,520), less the £1,500 credit, giving net tax of £1,020 and after-tax cash of £4,080. Before Section 24, tax would have been 20% of £5,100 (£1,020) — identical. A landlord firmly inside the basic-rate band is roughly unaffected by the interest part.
"Firmly" is doing work in that sentence. A landlord whose other income sits near the higher-rate threshold can be pushed over it by the inflated £12,600 figure, even though real cash profit is only £5,100. Once over, every pound above the threshold — including previously basic-band employment income — is taxed at 40%.
Worked example 3: tax on a loss-making property
This is the example that surprises landlords most: Section 24 can leave you with a tax bill on a property that lost money in cash terms.
- Rent £15,000; other allowable costs £2,000; mortgage interest £16,000
- Real cash result: £15,000 − £2,000 − £16,000 = a £3,000 loss
- Taxable rental profit under Section 24: £15,000 − £2,000 = £13,000
- Tax at 40%: £5,200
- Credit: 20% of the lowest of (£16,000 finance costs, £13,000 property profits, adjusted total income above the personal allowance) — here £13,000 — so £2,600
- Net tax: £5,200 − £2,600 = £2,600
The landlord lost £3,000 in cash and still owes £2,600 in tax. The unused £3,000 of finance costs carries forward, but does not refund this year's bill. If your property is highly geared and rent barely covers interest, run this calculation before assuming a loss year means a nil tax year.
The hidden effects: bands, allowances and thresholds
The most underestimated damage is not the credit gap but the inflated profit figure, which feeds into income-tested thresholds:
Higher-rate threshold. As in example 2, profit calculated before interest can push total income into the higher-rate band, raising tax on other income.
Personal allowance taper. The personal allowance (£12,570) falls by £1 for every £2 of adjusted net income above £100,000, reaching zero at £125,140. A landlord with employment income near £100,000 can lose allowance because of rental profit that mostly went to the lender in cash terms — creating a 60% effective marginal rate in the taper zone, before the credit gap is counted.
What landlords actually do about Section 24
There is no single fix, and several popular "fixes" create bigger bills than the problem:
1. Buy new properties through a limited company. For higher-rate landlords building a portfolio and reinvesting profit, this is usually the cleanest answer: interest is fully deductible and retained profit funds the next deposit. It suits landlords who do not need the rent to live on; it is weaker for basic-rate and income-now landlords, because dividend tax on extraction erodes the advantage.
2. Leave existing personal properties personal. Transferring a property you already own into your own company is treated as a sale at market value, triggering Capital Gains Tax and Stamp Duty Land Tax, plus legal costs — routinely wiping out several years of Section 24 savings. Incorporation relief can defer Capital Gains Tax in genuine-business cases, but not Stamp Duty Land Tax. Most landlords with one or two personal properties are better off leaving them personal and buying new stock through a company.
3. Reduce gearing. Paying down debt shrinks both the credit gap and the inflated profit figure. It also reduces leverage and return on cash — most attractive near a tax threshold, where a smaller mortgage can restore personal allowance or keep you in the basic band.
4. Raise rents — within the law. Higher rent improves cash profit, but increases are limited to once a year through Section 13 under the Renters' Rights Act, and tenants can challenge above-market rises. Underwriting on rises you cannot lawfully make is not a plan.
5. Review ownership with a spouse or partner. Jointly owned rental profit is normally split in line with ownership shares, which can put more profit in a lower-rate partner's hands. For married couples and civil partners, a 50/50 split applies by default unless a Form 17 declaration is filed, and the arrangement must reflect genuine beneficial ownership. Take advice before changing shares.
What not to do. Do not claim interest as an ordinary expense. Do not transfer properties into a company without Capital Gains Tax and Stamp Duty Land Tax figures. Do not assume a future reversal — none has been enacted. And do not let a tax tail wag the investment dog: a company structure that saves tax on a bad property still leaves you owning a bad property.
Section 24 and your buying checklist
Before you offer on a mortgaged property in your personal name, run these five numbers: (1) real cash profit — rent minus running costs minus mortgage interest; (2) taxable rental profit — rent minus running costs only; (3) net tax after the 20% credit — tax on the inflated figure at your marginal rate, less 20% of finance costs (subject to the lower-of cap); (4) after-tax cash flow — real cash profit minus net tax (if negative, the property costs you money every month even though it is let); (5) threshold check — does the inflated profit push you into a higher band or the personal allowance taper?
If step 4 is negative or step 5 triggers, the property needs a lower price, a larger deposit, a company structure for a new purchase, or a walk-away. The yield guide tests the same property on yield and cash-on-cash return; Section 24 is the tax layer on top.
Frequently asked questions
What is Section 24?
Section 24 of the Finance (No. 2) Act 2015 removed mortgage-interest deduction for individual residential landlords. Since 2020/21, individuals cannot deduct finance costs; instead they receive a 20% tax reduction on qualifying finance costs. Companies are not affected.
Can Section 24 make me pay tax when the property made a loss?
Yes. Taxable profit is calculated before interest, so a loss-making property can still show a taxable profit, and the 20% credit is capped at 20% of the lowest of finance costs, property profits and adjusted total income above the personal allowance. Unused costs carry forward but do not create a refund.
Related reading
- Limited Company Buy-to-Let vs Personal Name: Which Is Better in 2026?
- Buy-to-Let Mortgages for First-Time Landlords: Criteria, Deposits and Lenders (2026)
- How to Calculate Rental Yield: Gross vs Net (With UK Worked Examples)
- The Renters' Rights Act 2026: What Every Landlord Must Do Now
- Capital Gains Tax on Rental Property in the UK (2026 Rates and Allowances)