Section 24 of the Finance (No. 2) Act 2015 phased out the ability for individual UK landlords to deduct mortgage interest from rental income as a business expense. Since April 2020, landlords receive only a 20% basic-rate tax credit on mortgage interest paid — meaning higher-rate (40%) and additional-rate (45%) taxpayers now pay significantly more tax on the same rental income.
Section 24 is arguably the most impactful tax change to affect residential landlords in a generation. Since it was phased in between 2017 and 2020, higher and additional rate landlords have faced significantly larger tax bills on the same rental income — with no corresponding increase in cash flow.
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Section 24 restricts UK residential landlords’ mortgage interest relief to a 20% basic-rate tax credit — meaning higher-rate landlords now pay tax on rental income that mostly goes to the bank. The full restriction has applied since 2020/21. Strategies to mitigate include incorporation, transferring properties to a basic-rate spouse, or accepting the higher tax cost as the cost of leverage.
👉 Part of our pillar series: This article goes deep on one specific tax. For the full picture of how UK taxes fit together for individuals and small business owners, see our pillar guide: How Much Tax Do I Pay in the UK? 2026/27.
This 2026/27 guide explains exactly how Section 24 works, how to calculate your exposure, and the strategies that can genuinely reduce the impact.
⚠️ Section 24 — The Core Problem
Before Section 24, landlords deducted mortgage interest from rental income before calculating their tax bill. Now, individual landlords can only claim a flat 20% basic rate tax credit on their finance costs — regardless of whether they pay 40% or 45% tax. A higher-rate landlord paying £10,000/year in mortgage interest loses £2,000 of relief they used to receive.
How Section 24 Works
Under the old rules, mortgage interest was an allowable expense deducted from rental income. Under Section 24, the calculation works differently:
| Step | Old Rules | Section 24 (Current) |
|---|---|---|
| Rental income | £20,000 | £20,000 |
| Less: mortgage interest | £10,000 | Not deductible |
| Less: other allowable expenses | £3,000 | £3,000 |
| Taxable profit | £7,000 | £17,000 |
| Income tax at 40% | £2,800 | £6,800 |
| Less: 20% mortgage interest credit | N/A | £2,000 |
| Tax bill | £2,800 | £4,800 |
In this example the landlord pays £2,000 more tax on the same rental income — a 71% increase in their tax bill from the same property.
Who Is Affected
- Affected: Individual landlords owning residential buy-to-let property in their own name
- Affected: Landlords who pay income tax at the higher (40%) or additional (45%) rate
- Also affected: Basic rate landlords whose rental income pushes them into the higher rate band
- Not affected: Limited companies (full mortgage interest deduction remains)
- Not affected: Furnished Holiday Lettings (FHL rules apply — note: FHL regime abolished April 2025)
- Not affected: Commercial property
📋 The “Stealth” Effect on Basic Rate Landlords
Section 24 can push basic rate landlords into the higher rate band without them realising. Because rental income is now calculated on gross rent (before mortgage interest), the taxable profit figure is higher — which can push total income above £50,270. Once in the higher rate band, the 20% credit only covers 20% of interest costs where the marginal tax rate is 40%.
Section 24 Costing You Thousands?
Free review with a Chartered Tax Adviser — incorporation analysis included.
Calculating Your Section 24 Impact
The extra tax cost depends on your marginal tax rate and your annual mortgage interest payments:
| Your Tax Rate | Annual Mortgage Interest | Extra Tax Under Section 24 |
|---|---|---|
| Basic rate (20%) | Any amount | £0 — no extra cost |
| Higher rate (40%) | £5,000 | £1,000 extra |
| Higher rate (40%) | £10,000 | £2,000 extra |
| Higher rate (40%) | £25,000 | £5,000 extra |
| Additional rate (45%) | £10,000 | £2,500 extra |
| Additional rate (45%) | £25,000 | £6,250 extra |
Try our Section 24 calculator to model your specific position.
Strategies to Reduce the Section 24 Impact
🔧 Strategy 1 — Incorporate the Portfolio
A limited company can still deduct mortgage interest as a business expense — Section 24 does not apply. Companies pay corporation tax at 19–25% on net profit rather than income tax at 40–45%. For landlords with significant mortgage interest, incorporation can dramatically reduce the ongoing tax cost.
But be careful: Transfer of property to a company triggers SDLT on the market value and potentially CGT on any gain. The break-even point depends on the size of the portfolio, existing gains, and your SDLT exposure. We model this for each client individually. Property tax advice →
🔧 Strategy 2 — Pension Contributions to Reduce Adjusted Net Income
Section 24 is most painful when it pushes your adjusted net income (ANI) above £50,270 into the higher rate band. Making pension contributions reduces your ANI, which can bring you back to the basic rate band and eliminate the Section 24 charge entirely. This works best for landlords who are borderline higher-rate.
🔧 Strategy 3 — Transfer to a Spouse or Civil Partner
If one partner pays tax at the basic rate, transferring beneficial ownership (not necessarily legal title) to that partner means their share of rental income attracts only the 20% basic rate. The Section 24 credit then covers the full interest cost with no additional tax. Stamp Duty on transfers between spouses is generally exempt.
🔧 Strategy 4 — Remortgage to Reduce Interest Costs
The simplest approach — if you can reduce the outstanding mortgage or secure a lower interest rate, the Section 24 impact reduces proportionally. Not always practical, but worth reviewing if rates have changed since you last remortgaged.
⚠️ What Doesn’t Work
- Simply not declaring the income — HMRC’s Connect system matches Land Registry data, mortgage records and bank accounts. Non-declaration carries severe penalties.
- Claiming interest as a repair — mortgage interest is clearly defined; it cannot be recategorised.
- Transferring to children — income from assets transferred to minor children is still treated as the parent’s income under settlement rules.
✅ Key Takeaways — Section 24 2026/27
- Section 24 restricts mortgage interest relief to a flat 20% tax credit for individual landlords — regardless of your actual tax rate
- Higher-rate landlords pay £200 extra tax for every £1,000 of mortgage interest compared to the old rules
- Basic rate landlords can be pushed into the higher rate band by the gross rental income calculation
- Incorporation remains the most effective structural solution — but SDLT and CGT on transfer must be modelled carefully
- Pension contributions can eliminate Section 24 exposure for borderline higher-rate landlords
- Use our Section 24 calculator to model your specific position
Worked Examples: What Section 24 Actually Costs
The mechanics of Section 24 are easier to grasp through concrete numbers. The three scenarios below show how the same property generates very different tax outcomes depending on the landlord’s other income and mortgage profile. All examples use 2026/27 rates and assume the landlord is below the £100,000 personal-allowance taper.
Example 1: The basic-rate landlord who stays basic-rate
Sarah earns £35,000 from her job. She owns one buy-to-let producing £14,000 of rent with £6,000 of mortgage interest and £2,000 of other expenses. Pre-Section 24, her taxable rental profit would be £6,000 (£14,000 − £6,000 − £2,000). With Section 24, her taxable rental profit is £12,000 (£14,000 − £2,000) and she gets a £1,200 tax credit (20% of £6,000 mortgage interest).
Sarah’s total income for tax purposes is now £47,000. She’s still within the basic-rate band, so her tax on the rental is £12,000 × 20% = £2,400, less the £1,200 credit = £1,200 net. Pre-Section 24, she would have paid £6,000 × 20% = £1,200. Sarah pays exactly the same tax under Section 24 as before. This is the design intent — basic-rate landlords are unaffected.
Example 2: The higher-rate landlord squarely affected
James earns £70,000 from his employment. Same property as Sarah — £14,000 rent, £6,000 mortgage interest, £2,000 other expenses. Pre-Section 24, he would have paid £6,000 × 40% = £2,400 on the rental. Under Section 24, his taxable rental profit is £12,000, taxed at 40% = £4,800, less a £1,200 basic-rate credit = £3,600 net. James pays £1,200 more per year than before — the entire mortgage interest relief at the differential between his marginal rate and the basic rate (20% × £6,000).
Scale that across a typical four-property portfolio with average mortgage interest of £8,000 per property: James is paying an additional £6,400 a year in tax just because Section 24 exists. That’s £64,000 over a decade — enough to fund deposits on multiple additional properties.
Example 3: The basic-rate landlord pushed into higher rate
This is the cohort most landlords don’t realise they’re in. Priya earns £42,000 from work and owns three buy-to-lets producing £40,000 of rent with £22,000 of mortgage interest. Pre-Section 24, her rental profit would have been £18,000 (£40,000 − £22,000), her total taxable income £60,000, and she would have paid 40% on the slice above £50,270.
Under Section 24, her taxable rental profit is £40,000 (gross rent minus the mortgage interest add-back). Her total income for tax purposes balloons to £82,000. The 20% mortgage interest credit (£4,400) helps, but it cannot offset the band-creep effect. Priya pays approximately £3,800 more per year than pre-Section 24, even though she’s nominally a “basic-rate taxpayer” on her employment income. The High-Income Child Benefit Charge may also kick in if she has children, adding further cost.
⚠️ Watch out for the bandcreep effect
If you also receive Child Benefit, claim the Marriage Allowance, or have student loan repayments, the apparent income increase under Section 24 can trigger losses or surcharges far beyond the headline tax difference. Always model your full position before assuming the impact is manageable.
The Incorporation Decision: A Break-Even Framework
Incorporating a property portfolio is the most-discussed Section 24 mitigation strategy, but it’s also the most often misunderstood. Moving properties into a limited company triggers SDLT (at the higher 5% surcharge rate plus the standard residential bands) and potentially CGT — costs that can easily reach 10-15% of portfolio value upfront. Whether that’s worth paying depends on a few specific variables.
The cost side: SDLT, CGT and professional fees
For a typical four-property portfolio worth £1.2 million with £600,000 of debt, transferring into a limited company incurs roughly: SDLT of around £58,000 (residential rates plus 5% surcharge across each property), CGT on accrued gains (depending on holding period and previous PRR), and professional fees of £4,000-£8,000 for tax advice and conveyancing. Total: typically £70,000-£90,000 of one-off costs before any benefit kicks in.
There are two main reliefs that can reduce this. Section 162 incorporation relief can defer the CGT charge if the property activity constitutes a “business” (broadly, you must spend at least 20 hours a week running it). Stamp Duty partnership relief can reduce SDLT to near-zero if the properties have been held in a genuine partnership for the year before incorporation. Both reliefs are HMRC-scrutinised — you need professional structuring well in advance.
The benefit side: ongoing tax savings
A limited company pays corporation tax (19-25%) on rental profits after fully deducting mortgage interest. For James (Example 2 above), incorporated structure would produce £8,000 of profit taxed at 19% — £1,520 — versus the £3,600 he pays under Section 24 in personal name. That’s a £2,080 annual saving per property. The break-even on incorporation costs takes roughly 7-10 years for most higher-rate portfolios.
When incorporation is and isn’t worth it
Incorporation typically makes sense when:
- You have 4+ properties and the portfolio is growing
- You’re a 40%+ taxpayer on your other income
- You can claim Section 162 relief (the activity is a genuine business)
- You can claim SDLT partnership relief (properties were held in partnership for 12+ months)
- You plan to retain profits to buy more property rather than extracting them as dividends
Incorporation is usually wrong when:
- You have 1-2 properties and no portfolio-building plans
- You need the rental income for personal living costs (dividend tax now bites at 10.75%/35.75%)
- You plan to sell properties within 3-5 years (you’ve paid SDLT to get them in and CGT when the company sells)
- Your mortgages won’t transfer — many BTL lenders will not permit transfer to a company
Common Mistakes Landlords Make with Section 24
The legislation has been in force since 2017 but I still see landlords making the same expensive errors. Some are mathematical, some are strategic.
1. Assuming “basic-rate taxpayer” status means you’re unaffected
Section 24 grosses up your rental income before testing which band you sit in. Even if your day-job income alone keeps you in basic-rate territory, three or four mortgaged buy-to-lets can push your “tax income” above £50,270 and into 40%. The only safe way to know is to model it — assumption is the costliest error.
2. Raising rent without checking the tax impact
A common reaction to Section 24 is “I’ll just put the rent up”. But because rent counts as gross income under Section 24, a £200/month rent rise (£2,400/year) only delivers around £960 of after-tax income to a higher-rate landlord — and the higher gross income may trigger band creep elsewhere. The tenant pays the extra £2,400; HMRC takes the lion’s share. Negotiate the right rent for the property’s market position, not as a tax-mitigation strategy.
3. Ignoring pension contributions as a Section 24 fix
For landlords on the borderline of higher-rate (typically £45,000-£60,000 of combined income), making a £5,000-£8,000 pension contribution can pull your adjusted net income back below the £50,270 threshold. This restores full mortgage interest relief at the 20% level you would have had anyway, but more importantly it stops band-creep on top of that. The pension contribution is itself tax-relieved at 40% on the way in.
4. Holding properties in joint names without thinking it through
Joint ownership between spouses defaults to 50/50 income splits, but you can elect for a different split via Form 17 if the underlying beneficial ownership matches. If one spouse is a basic-rate taxpayer and the other is higher-rate, allocating more of the rental income to the basic-rate spouse can entirely eliminate the Section 24 problem without needing incorporation. This is the single most under-used Section 24 mitigation in my experience.
5. Forgetting about CGT when “selling and rebuying via the company”
Some landlords avoid incorporation relief complications by simply selling the property personally (paying CGT) and having their company buy it back (paying SDLT). This rarely works in financial terms — you’ve paid CGT at 18%/24% on accrued gains, SDLT at standard rates plus the 5% surcharge, and conveyancing twice. Unless gains are small or you’ve fully used Private Residence Relief, the cost typically exceeds 15-20% of property value. The CGT base cost reset in the company is usually not worth that price.
Frequently Asked Questions
What is Section 24?
Section 24 of the Finance Act 2015 restricts mortgage interest relief for individual residential landlords to a flat 20% basic rate tax credit, regardless of the landlord’s actual income tax rate. Higher and additional rate taxpayers can no longer deduct mortgage interest costs from their rental income before calculating tax.
Who is affected by Section 24?
Section 24 affects individual landlords who own residential buy-to-let property in their own name. It does not apply to limited companies (which can still deduct mortgage interest as a business expense), furnished holiday lettings, or commercial property.
How can landlords reduce the impact of Section 24?
Options include incorporating the property portfolio into a limited company (triggering SDLT and CGT on transfer but allowing full mortgage interest deduction going forward), increasing rent to offset the tax increase, making pension contributions to reduce adjusted net income, or remortgaging to reduce outstanding mortgage balances.
📚 Related reading
- Buy-to-Let: Personal vs Limited Company — Section 24 doesn’t apply to companies — but is incorporation actually worth the SDLT cost? Full break-even analysis.
- Non-Resident UK Property Tax — Landlords abroad also face the NRL scheme and 60-day CGT — different problems from Section 24.
Property tax is one of The Tax Lead’s deepest specialisms. He advises landlords from single buy-to-let properties through to large portfolios on Section 24 mitigation, incorporation decisions and the full range of property tax issues. Shamim holds the CTA — the UK’s highest tax qualification — and advises on the full spectrum of property tax including SDLT, Section 24, CGT and portfolio structuring.
Need a specialist look at your property tax position?
This article is part of our wider UK Property Tax specialism — covering Section 24 modelling, BTL incorporation analysis, SDLT, ATED, CGT 60-day reporting and property partnerships. Every engagement is led by a Chartered Tax Adviser.