Section 24 removed mortgage interest tax relief for individual buy-to-let landlords — replacing it with a flat 20% tax credit. Higher rate taxpayers now pay significantly more tax on the same rental income. Here is how it works, who is affected, and what landlords are doing about it in 2026/27.
What Changed Under Section 24
Before Section 24 was phased in (2017–2020), landlords could deduct all mortgage interest from rental income before calculating tax. A landlord with £20,000 rental income and £12,000 mortgage interest paid tax only on the £8,000 net profit.
After full implementation in April 2020, landlords must:
- Calculate tax on the full rental income (no deduction for mortgage interest)
- Claim a 20% tax credit on finance costs (mortgage interest, loan arrangement fees)
The result: higher and additional rate taxpayers pay more tax on the same property.
Section 24 Impact by Tax Rate
| Landlord type | Old rules | Section 24 | Extra tax per £1,000 mortgage interest |
|---|---|---|---|
| Basic rate (20%) | £200 tax | £200 tax − £200 credit = £0 net | £0 — no change |
| Higher rate (40%) | £400 tax | £400 tax − £200 credit = £200 net | £200 — 20p per £1 |
| Additional rate (45%) | £450 tax | £450 tax − £200 credit = £250 net | £250 — 25p per £1 |
Basic rate taxpayers are largely unaffected. Higher and additional rate taxpayers bear the full impact.
Worked Example: The Higher Rate Landlord
Sarah earns £48,000 from her job and receives £18,000 in gross rental income. Her mortgage interest on the property is £12,000 per year.
Under old rules:
- Net rental profit: £18,000 − £12,000 = £6,000
- Tax on rental profit at 40%: £2,400
Under Section 24:
- Gross rental income added to salary: £48,000 + £18,000 = £66,000
- Total income is above the £50,270 threshold — rental income is taxed at 40%
- Tax on £18,000 rental income at 40%: £7,200
- Less 20% credit on £12,000 finance costs: −£2,400
- Net tax bill: £4,800
Sarah pays £2,400 more per year under Section 24 than she did under the old rules — on the same property with the same mortgage. Her rental profit (before tax) is still just £6,000.
The “Phantom Income” Problem
Section 24 can make landlords appear wealthier than they are, pushing them above tax thresholds with consequences beyond just the higher rate:
| Threshold effect | What it triggers |
|---|---|
| Income over £50,270 | Higher rate tax (40%) on all income above threshold |
| Income over £60,000 | High Income Child Benefit Charge begins |
| Income over £100,000 | Personal allowance taper begins (£1 lost per £2 above) |
| Income over £125,140 | Personal allowance fully withdrawn |
A landlord with a moderate salary and gross rental income could find their effective tax rate on rental income exceeds 60% in the £100,000–£125,140 band.
Key Figures 2026/27
| Amount | |
|---|---|
| Personal allowance | £12,570 |
| Basic rate band | £12,571–£50,270 (20%) |
| Higher rate band | £50,271–£125,140 (40%) |
| Additional rate | Over £125,140 (45%) |
| Finance cost tax credit rate | 20% (fixed) |
| Corporation Tax main rate | 25% |
| Corporation Tax small profits rate | 19% |
What Landlords Are Doing in Response
1. Limited Company Ownership
New landlord purchases are increasingly made through limited companies, which still deduct mortgage interest as a business expense. Corporation Tax applies at 25% (profits above £250,000) or 19% (profits below £50,000). However, extracting profits via dividends incurs further tax — total effective tax depends on individual circumstances.
Transferring an existing personally owned property to a company triggers:
- Stamp Duty Land Tax (calculated on market value)
- Capital Gains Tax (CGT on the gain to date)
- Legal costs
For most existing landlords, incorporation is only cost-effective with professional advice and long holding periods.
2. Accelerating Mortgage Repayment
Reducing the outstanding mortgage reduces the interest charge and therefore the Section 24 impact. Overpaying the mortgage reduces gross finance costs each year.
3. Pension Contributions
Making personal or employer pension contributions reduces adjusted net income — potentially keeping total income below the 40% threshold, HICBC threshold, or personal allowance taper band.
4. Holding Properties in a Spouse’s Name
If one partner is a basic rate taxpayer, holding rental properties (or transferring a share) in that partner’s name means Section 24 has no net impact — the 20% credit offsets the 20% tax.
5. Selling Properties
Some landlords have exited the market, particularly those with high loan-to-value mortgages where the Section 24 cost renders the investment unviable after tax.
How to Report Rental Income
Rental income is reported on the UK Property pages (SA105) of your Self Assessment return. Finance costs go in Box 26 (residential finance costs). The 20% credit is calculated by HMRC from the figures you submit.
See our buy-to-let tax guide, capital gains tax on property guide, and limited company pension tax relief guide.