Section 24 mortgage interest relief explained

What Section 24 is and who it applies to

Section 24 is the common name for the rules in sections 272A and 274A to 274C of the Income Tax (Trading and Other Income) Act 2005, which restrict tax relief on finance costs for residential lettings. It applies to you if you are an individual letting out residential property, such as a buy-to-let house or flat, whether you own it alone or jointly with someone else.

The furnished holiday lettings regime was abolished from 6 April 2025, so former holiday lets now fall within the restriction too. Section 24 does not apply to companies, or to commercial property.

What counts as finance costs

Finance costs are the costs of borrowing money for your letting business. They include:

• mortgage interest on a let property
• interest on loans to buy furnishings
• fees and incidental costs of getting or repaying a loan

The capital you repay on a repayment mortgage has never been deductible, before or after Section 24. Your other running costs, such as letting agent fees, repairs and insurance, are still deducted from the rent as normal. The guide to allowable expenses for landlords lists them.

How the tax credit works

You work out your property profit without deducting finance costs, pay tax on that profit at your usual rates, and then take a tax reduction off your bill. The reduction is 20%, the basic rate, of the lowest of three amounts:

1. Finance costs: the finance costs not deducted this year, plus any unrelieved amounts brought forward from earlier years.
2. Property profits: your property business profit for the year, after any property losses brought forward.
3. Income: your adjusted total income above the personal allowance, which leaves out savings and dividend income.

The reduction can bring your tax bill down but it cannot create a refund. If your property profits or your income are the lowest of the three, the finance costs that missed out are carried forward and added to the first amount in later years.

Worked example: a landlord who pays higher rate tax

A landlord in England earns £45,000 from their job in 2026/27. They receive £18,000 rent, spend £3,200 on letting fees, repairs and insurance, and pay £6,400 of mortgage interest.

Rent received

£18,000

Less allowable expenses

£3,200

Property profit, with interest not deducted

£14,800

Section 24 credit

£1,280

Tax caused by the rent under Section 24

£3,586

Tax caused by the rent if interest were deducted as before 2017

£2,306

Extra tax caused by Section 24

£1,280

The salary uses up most of the basic rate band, so £9,530 of the profit is taxed at 40%. Under the old rules the interest would have been deducted and saved tax at 40%. Under Section 24 it earns a credit at 20%, which is why the bill is £1,280 higher. Both figures use 2026/27 rates.

Why higher rate landlords pay more and many basic rate landlords do not

Section 24 costs you extra tax when your finance costs would otherwise have been relieved above the basic rate. Before April 2017, interest was deducted from rental profit, so it saved tax at your highest rate: 40% for a higher rate taxpayer or 45% for an additional rate taxpayer. The credit gives relief at 20% whatever rate you pay.

If all your income, including the rental profit with interest added back, stays inside the basic rate band, the credit gives you the same relief the deduction did. Take a landlord who earns £20,000, receives £12,000 rent, spends £1,000 on running costs and pays £5,000 of interest. Their tax on the rent is £1,200 under Section 24 and £1,200 under the old rules, so Section 24 costs them £0.

Basic rate landlords are not always unaffected. Because interest is no longer deducted, your profit and total income are higher on paper. That can push you into the higher rate band, or take your income over £100,000, where the personal allowance starts to shrink.

HMRC's own example: John

HMRC's guidance shows the same effect with a case study. John has self-employment income of £35,000, rent of £18,000, mortgage interest of £8,000 and other expenses of £2,000. With the interest no longer deducted, his property profit is £16,000 and his tax before the reduction is £9,600. The reduction is £1,600, so his final tax is £8,000, compared with £6,400 before the restriction. The higher profit also makes him a higher rate taxpayer. HMRC uses the 2016/17 rates and allowances throughout its examples, so these figures will not match a calculation for 2026/27.

When the limits cut your credit and interest is carried forward

Your credit is less than 20% of your interest when your property profit or your income above the personal allowance is lower than your finance costs. Take a landlord who earns £45,000, receives £10,000 rent, spends £2,000 on running costs and pays £12,000 of interest.

Their property profit is £8,000, which is less than the interest, so the credit is worked out on the profit. The credit is £1,600, and the £4,000 of interest that got no relief is carried forward to later years. They still pay £546 of tax on the rent, even though the rent does not cover their costs.

Carried-forward interest is added to your finance costs next year, so you get the credit once your profit or income is high enough to absorb it.

How Section 24 was phased in

The restriction came in over four tax years starting on 6 April 2017 and has applied in full since 6 April 2020. In each year, the part of your finance costs that could not be deducted was given as a basic rate credit instead.

• 2017/18: 75% of finance costs deductible
• 2018/19: 50% deductible
• 2019/20: 25% deductible
• 2020/21 onwards: none deductible, with all relief given as the credit

The credit rises to 22% from April 2027

From 6 April 2027, the credit is worked out at 22%, because property income gets its own tax rates. In England and Northern Ireland those rates are 22%, 42% and 47%, so the gap between the credit and the rate on your profit stays the same. The changes are set out in property income tax rates from April 2027.