Section 24: Mortgage Interest Relief for Landlords

What is Section 24?

Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how individual UK landlords are taxed on residential rental income. Before this legislation, landlords could deduct mortgage interest and other finance costs directly from their rental income, reducing their taxable profit. This worked the same way as any other allowable business expense.

Under Section 24, that deduction has been replaced with a basic-rate tax credit. Landlords must now declare their full rental income without subtracting mortgage interest, and instead receive a tax credit worth 20% of their finance costs. For basic-rate taxpayers the net effect is broadly neutral, but for higher-rate and additional-rate taxpayers the change can mean thousands of pounds in extra tax each year.

Finance costs covered by Section 24 include mortgage interest, interest on loans to buy furnishings, and fees incurred when taking out or repaying mortgages or loans.

How Section 24 was phased in

The restriction was introduced gradually over four tax years to give landlords time to adjust:

• 2017-18: 75% of finance costs deductible as an expense, 25% given as a 20% tax credit
• 2018-19: 50% deductible, 50% as a tax credit
• 2019-20: 25% deductible, 75% as a tax credit
• 2020-21 onwards: 0% deductible — 100% of finance costs are given as a 20% basic-rate tax credit

Since the 2020-21 tax year, the restriction has been fully in force. No portion of mortgage interest can be deducted from rental income.

Before vs after: a worked example

Consider a higher-rate taxpayer with rental income of £30,000 and annual mortgage interest of £10,000.

Before Section 24:

• Rental income: £30,000
• Mortgage interest deducted as expense: -£10,000
• Taxable rental profit: £20,000
• Tax at 40% (higher rate): £8,000

After Section 24 (2020-21 onwards):

• Rental income: £30,000
• Mortgage interest deducted: £0 (not allowed)
• Taxable rental profit: £30,000
• Tax at 40%: £12,000
• Less 20% tax credit on £10,000 finance costs: -£2,000
• Final tax bill: £10,000

The landlord pays £2,000 more per year under Section 24 — a 25% increase in their tax bill on rental income. The gap between the 40% rate they pay tax at and the 20% credit they receive creates the extra cost. For additional-rate taxpayers at 45%, the gap is even wider.

The tax band push effect

Section 24 can also cause a less obvious problem: pushing landlords into a higher tax band entirely. Because mortgage interest is no longer deducted from rental income, the landlord's total taxable income is higher — and that inflated figure is what determines their tax band.

Example: A landlord earns £42,000 from employment and £15,000 in net rent after other expenses, with £8,000 in mortgage interest.

Before Section 24:

• Total taxable income: £42,000 + (£15,000 - £8,000) = £49,000
• This falls within the basic-rate band (up to £50,270), so all rental profit is taxed at 20%

After Section 24:

• Total taxable income: £42,000 + £15,000 = £57,000
• This pushes £6,730 above the higher-rate threshold of £50,270
• That £6,730 is now taxed at 40% instead of 20% — costing an extra £1,346
• The 20% tax credit on £8,000 only returns £1,600, instead of the £3,200 that a full deduction at 40% would have saved

This double hit — being pushed into a higher band while only receiving basic-rate relief — is what makes Section 24 particularly painful for landlords whose total income sits near a tax band threshold. It can also affect eligibility for the personal allowance taper (which starts at £100,000), child benefit charges, and student loan repayment thresholds.

How Section 24 affects MTD submissions

Making Tax Digital (MTD) for Income Tax requires landlords with qualifying income over £50,000 (dropping to £30,000 from April 2027) to submit quarterly income and expense updates to HMRC digitally.

Under MTD, mortgage interest and finance costs are not included in your quarterly expense submissions. This is because HMRC no longer treats them as a deductible expense — they are a tax reducer instead.

Finance costs are reported separately in the annual end-of-period statement (EOPS) under a specific field called residentialFinancialCost. HMRC uses this figure to calculate your 20% basic-rate tax credit and apply it to your final tax calculation.

Getting this wrong is one of the most common MTD mistakes for landlords. If you include mortgage interest in your quarterly expenses, you will over-report your deductions and your tax calculation will be incorrect. If you forget to declare it in your annual statement, you will miss out on the 20% credit entirely.

Who is not affected by Section 24

Section 24 applies specifically to individual landlords, partnerships, and trusts receiving UK residential property income. The following are not affected:

• Limited companies: If you hold rental properties through a limited company, mortgage interest remains fully deductible as a business expense against profits. This is one reason some landlords have incorporated since Section 24 was introduced.
• Commercial property: Section 24 only applies to residential property. Landlords with commercial premises (offices, retail units, warehouses) can still deduct finance costs as normal.
• Furnished holiday lets (FHLs): Properties qualifying as furnished holiday lets were historically exempt from Section 24 and received more favourable tax treatment. However, the FHL tax regime was abolished from April 2025, so this exemption no longer applies for new tax years.

Strategies landlords use to manage Section 24

While Section 24 cannot be avoided by individual landlords with residential property, there are legitimate strategies some use to manage the impact:

• Incorporation: Transferring properties to a limited company removes the Section 24 restriction, but triggers stamp duty and capital gains tax on the transfer, so it is not always cost-effective.
• Reducing borrowing: Paying down mortgage balances reduces the finance costs affected by the restriction.
• Maximising other deductions: Ensuring all other allowable expenses (repairs, letting agent fees, insurance) are claimed correctly becomes even more important when mortgage interest relief is limited.
• Accurate record-keeping: With MTD requiring quarterly digital submissions, maintaining precise records of income and expenses — and correctly separating finance costs — is essential to avoid errors.

Keep your Section 24 reporting accurate

Landlo is built for UK landlords preparing for Making Tax Digital. It automatically separates your mortgage interest from other property expenses, ensures finance costs are excluded from quarterly submissions, and reports them correctly as residentialFinancialCost in your annual end-of-period statement — so your 20% tax credit is calculated properly without manual workarounds.

Learn more about Landlo