Section 24: how mortgage interest relief works for landlords now

For individual landlords, mortgage interest is no longer an allowable expense against rental income. It was phased out between 2017 and 2020 and replaced by a basic-rate tax credit. The change is usually referred to as Section 24, and it remains the single biggest reason a landlord’s tax bill can rise while their actual profit stays flat.

How it works now

You declare the full rent as income, deduct your other allowable expenses, and pay tax on the resulting profit. You then receive a tax reduction worth 20% of your finance costs.

For a basic-rate taxpayer the outcome is broadly neutral. For a higher-rate taxpayer it is not: you pay 40% on income that includes money that went straight to a lender, and get relief at only 20%.

A worked example

Take a landlord with £24,000 of rent, £6,000 of running costs and £9,000 of mortgage interest. Real economic profit is £9,000.

Under the old rules, taxable profit was £9,000. A higher-rate taxpayer paid £3,600.

Under the current rules, taxable profit is £18,000 — because the interest is not deducted. Tax at 40% is £7,200, reduced by a credit of £1,800 (20% of £9,000), giving £5,400.

Same property, same cash, £1,800 more tax.

The knock-on effects

Because your declared income is now higher, Section 24 can drag you into consequences that have nothing to do with property:

• The High Income Child Benefit Charge, which begins once income passes £60,000.
• Loss of the personal allowance, tapered away between £100,000 and £125,140.
• Being pushed from basic into higher rate, which changes the rate on all your other income too.

A landlord who was comfortably a basic-rate taxpayer on economic profit can find themselves a higher-rate taxpayer on paper.

What is not affected

Section 24 applies to residential property held personally. It does not apply to furnished holiday lettings under the rules as they applied historically, to commercial property, or to property held in a limited company — companies still deduct interest as an ordinary business expense.

Is incorporating the answer?

Sometimes, and much less often than the internet suggests. Moving property into a company is a disposal for Capital Gains Tax purposes and usually triggers Stamp Duty Land Tax at the higher rates, so the entry cost can be substantial. Mortgage products for companies typically carry higher rates. And extracting profit from the company brings its own tax.

It can work for larger portfolios, for landlords who intend to reinvest rather than draw income, and where incorporation relief is available. It rarely works for someone with one or two properties. The only way to know is to model your specific position, which we are happy to do.

This guide is general information and not advice. Tax depends on your circumstances and the rules change — please speak to us before acting on it.