What You Must Know About Section 24 Mortgage Interest Relief in 2026

Section 24 mortgage interest relief means landlords can no longer deduct mortgage and finance costs from rental profit. Instead, you receive a 20% basic-rate tax reduction on the lower of your finance costs, property profits, or adjusted total income. This can push some landlords into a higher tax band.

Key takeaways

• Finance costs are no longer an expense. Mortgage interest, loan fees and other finance costs cannot be deducted from your rental income.
• You get a 20% tax credit instead. Relief is given as a basic-rate reduction against your tax bill, worth 20% of the lower of your finance costs, property profits, or adjusted total income.
• It can inflate your taxable income and push you into the higher-rate (40%) or additional-rate (45%) band even when your real profit is unchanged.
• It only affects individuals and partnerships — limited companies deduct interest as normal.
• Model the impact before you file. Our UK rental income calculator shows the Section 24 effect on your own numbers.

What is Section 24 mortgage interest relief?

Section 24 of the Finance (No. 2) Act 2015 changed how unincorporated residential landlords get tax relief on their mortgage and finance costs. The change phased in gradually from 2017/18 and has been fully in force since 2020/21, so it applies in full for the 2026/27 tax year.

Under the old rules, a landlord simply subtracted mortgage interest from rental income, along with repairs and other running costs, and paid tax on what was left. Under Section 24, finance costs are stripped out of that calculation entirely. You now pay tax on rental profit before any deduction for interest, and separately receive a tax reduction worth 20% of your finance costs.

For a basic-rate taxpayer, the maths broadly nets off — 20% relief roughly matches the 20% they would have saved before. The problem lands on landlords whose income tips into higher rates, because the credit is capped at 20% while their income is being taxed at 40% or 45%.

How is the 20% tax reduction calculated?

The Section 24 tax reduction is 20% of the lowest of three amounts:

• Your total finance costs for the year (plus any unused finance costs carried forward from earlier years).
• Your property business profits for the year.
• Your adjusted total income — broadly your income above the personal allowance, excluding savings and dividend income.

Because it takes the lowest figure, landlords with losses or very low profits may not get the full 20% in the current year. Any finance costs you cannot relieve are carried forward and used against future rental profits, so the relief is deferred rather than lost. HMRC sets out the mechanics, with worked case studies, in its guidance for residential landlords.

Why does Section 24 push landlords into a higher tax band?

This is the part that catches people out, and it is the real sting of Section 24 mortgage interest relief. Because your mortgage interest is added back into taxable rental profit before the credit is applied, your total taxable income on paper is larger than your actual economic profit.

Income tax bands in England and Northern Ireland for 2026/27 work like this:

• Personal allowance: £12,570 (no tax).
• Basic rate (20%): taxable income up to £37,700 — meaning total income up to £50,270.
• Higher rate (40%): income from £50,271 to £125,140.
• Additional rate (45%): income above £125,140.

When the added-back interest lifts your income figure past £50,270, the slice above that threshold is taxed at 40%. You still only get a 20% credit on the interest, so you are effectively paying tax at 40% on money you never kept.

A worked example: the higher-rate push

Consider a landlord with a £38,000 salary and one buy-to-let property:

• Rental income: £22,000
• Non-finance costs (repairs, insurance, agent fees): £2,000
• Mortgage interest: £11,000

Real cash profit from the property is £22,000 − £2,000 − £11,000 = £9,000. Added to a £38,000 salary, this landlord earns £47,000 in economic terms — comfortably inside the basic-rate band.

Under Section 24, the mortgage interest is ignored when working out taxable rental profit, so the taxable figure becomes £22,000 − £2,000 = £20,000. Total taxable income is now £38,000 + £20,000 = £58,000. Because that exceeds the £50,270 higher-rate threshold, roughly £7,730 of income is now taxed at 40%.

The landlord does receive a 20% credit on the £11,000 interest (£2,200), but that only relieves at the basic rate. The net result: a landlord whose real profit is a modest £9,000 is now a higher-rate taxpayer, with a bigger bill than the old rules would have produced. You can test this effect on your own figures with our calculators or the dedicated rental income tool.

Who does Section 24 actually affect?

Section 24 applies to individuals and partnerships letting residential property who have mortgage or finance costs. It bites hardest on:

• Higher-rate and additional-rate taxpayers with mortgaged buy-to-lets.
• Basic-rate landlords whose rental income tips them over £50,270.
• Landlords near £100,000, where a larger income figure can start tapering the personal allowance.
• Families claiming Child Benefit, where the inflated figure can trigger the High Income Child Benefit Charge.

It does not apply to limited companies, to commercial property, or to genuinely unmortgaged portfolios. This is why some landlords weigh up incorporation — but transferring property to a company can trigger Stamp Duty Land Tax and Capital Gains Tax, so it is rarely a simple win. General income tax band information is published on GOV.UK, and the wider rules on renting out a property sit alongside it.

How to manage Section 24 on your tax return

You report property income and finance costs through Self Assessment. The finance-cost figure goes in its own box so HMRC can apply the 20% reduction — it is not mixed in with your other expenses. Getting that split wrong is a common error that either overstates your relief or inflates your bill.

Practical steps that often help:

• Keep finance costs recorded separately from repairs and running costs all year.
• Track any carried-forward finance costs from previous years, as they are easy to overlook.
• Model the band impact before the tax year ends, while there is still time to plan.
• Review ownership structure (for example, transferring a share to a lower-earning spouse) with a qualified adviser.

Every Self Assessment return prepared by Next Tax Source is reviewed and signed off by a licensed chartered accountant before anything is filed. If you are unsure how Section 24 affects you, our guide to Self Assessment for landlords walks through the return step by step, and our companion piece on the UK landlord tax calculator shows how to stress-test your position. When you are ready for tailored advice, you can book a consultation.

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Reviewed by [Chartered Accountant]. Figures reflect England and Northern Ireland income tax rates for the 2026/27 tax year. Scotland sets its own income tax bands. This article is general information, not personal tax advice — confirm your position with a qualified professional before acting.

Last updated: 4 August 2026

Frequently asked questions

Does Section 24 apply to limited company landlords?

No. Section 24 only restricts finance-cost relief for individuals and partnerships letting residential property. Companies deduct mortgage interest as a normal business expense against profits, which is one reason many landlords consider incorporating — though incorporation carries its own SDLT and Capital Gains Tax costs.

Can I still deduct any mortgage costs at all?

Not from your rental profit. Mortgage interest, loan arrangement fees and finance costs no longer reduce taxable rental income. Instead they generate a 20% tax reduction (a credit against your bill). Non-finance costs such as repairs, letting-agent fees, insurance and ground rent remain fully deductible.

Does Section 24 affect furnished holiday lets or commercial property?

The restriction targets residential lettings. Commercial property finance costs are generally still deductible in the normal way. Furnished holiday let rules have changed in recent years, so the position there should be confirmed for your specific tax year with a qualified adviser.

What happens if my finance costs are bigger than my rental profit?

The 20% reduction is calculated on the lowest of three figures: your finance costs, your property profits, or your adjusted total income. Any unused finance costs are carried forward to future years, so relief is not lost — just deferred until profits are large enough to absorb it.

Will Section 24 push me into the higher-rate tax band?

It can. Because mortgage interest is added back into your taxable rental profit before the 20% credit is applied, your total taxable income looks larger. If that inflated figure crosses £50,270, part of your income is taxed at 40% even though your real cash profit has not changed.

Does Section 24 affect my entitlement to Child Benefit or the personal allowance?

Yes, indirectly. Because your taxable income figure is higher under Section 24, it can trigger the High Income Child Benefit Charge or begin tapering your personal allowance above £100,000, even where your actual profit is modest. This knock-on effect catches many landlords by surprise.