Section 24 Explained: How the Landlord Mortgage-Interest Rules Work (2026/27)

Few tax changes have affected landlords as much as Section 24. It quietly increased the tax bills of many buy-to-let owners by changing how mortgage interest is treated. This guide explains what Section 24 is, how it works in 2026/27, who it hits hardest, and how to estimate your own position.

What is Section 24?

In short: Section 24 is the rule that stops landlords deducting mortgage interest from their rental income before tax. Instead, you get a tax credit worth 20% of the interest. Phased in between 2017 and 2020, it's now fully in force.

Before Section 24, landlords treated mortgage interest like any other expense, deducting it from rental income to reach a lower taxable profit. Now the interest isn't deducted at all - your taxable profit is higher - and you receive a separate 20% credit against your tax bill. Our Section 24 Calculator shows the effect on a single property.

Section 24: who is affected and how

How does the mortgage-interest tax credit work?

In short: you calculate tax on your full rental profit (without deducting interest), then reduce your tax bill by 20% of the mortgage interest, capped at your profit.

For a basic-rate taxpayer, the 20% credit roughly matches the tax they'd have saved under the old system, so the effect is broadly neutral. For higher and additional-rate taxpayers, it's a real increase: their profit is taxed at 40% or 45%, but relief on the interest is capped at 20%. That gap is the sting of Section 24.

Who does Section 24 hit hardest?

In short: higher-rate and additional-rate landlords with large mortgages are hit hardest, along with basic-rate landlords whose rental profit tips them into the higher band once it's added to their other income.

That second group is the one that catches people out. Because rental profit now appears higher (interest isn't deducted), it can push your total income over the higher-rate threshold even if your "real" profit is modest - meaning some of your income is suddenly taxed at 40%. This is why seeing your whole position matters, not just one property in isolation. Our Landlord Rental Income & Tax Organiser applies Section 24 across your whole portfolio.

A worked example

Take a higher-rate landlord with £18,000 rent, £4,000 of expenses (excluding mortgage) and £6,000 of mortgage interest. Under the old rules, taxable profit was £8,000, taxed at 40% = £3,200. Under Section 24, the interest isn't deducted, so taxable profit is £14,000, taxed at 40% = £5,600 - then reduced by a 20% credit on the £6,000 interest (£1,200), giving final tax of £4,400. That's £1,200 more than under the old system, purely because of how the interest is treated. The Section 24 Calculator does this maths for you.

What can landlords do about it?

There's no way to opt out, but landlords respond in several ways: holding property through a limited company (where mortgage interest remains deductible, though that brings its own costs and tax), reducing borrowing, reviewing whether to hold property jointly with a lower-earning spouse, or factoring the higher tax into the yields they accept. Each route has trade-offs and is worth taking advice on. To compare scenarios, model your rental tax with the Rental Income Tax Calculator and your whole portfolio with the Landlord Organiser.

Section 24 and Making Tax Digital

Landlords also need to prepare for Making Tax Digital for Income Tax, which requires digital records and quarterly updates once your gross rental income crosses the threshold - and remember, that threshold is based on gross rent, not your Section 24-adjusted profit. Check whether it applies with our MTD Scope Checker, and keep records free with the Quarterly Record Organiser. Our MTD guide has the full picture.

The hidden knock-on effects of Section 24

The headline problem with Section 24 is the gap between the rate at which your profit is taxed and the 20% credit you get on interest. But the way it inflates your taxable rental profit can have a series of knock-on effects that catch landlords by surprise, because several other parts of the tax system key off your total income figure.

• Loss of the Personal Allowance. Because your taxable rental profit now looks higher, your total income can creep towards the level where the tax-free Personal Allowance starts to be withdrawn. That effectively raises the tax rate on a slice of income well above the headline higher rate.
• Child Benefit charge. A higher reported income can trigger or increase the High Income Child Benefit Charge for families, even though the landlord's real economic profit has not changed.
• Tipping into the higher-rate band. A basic-rate taxpayer whose grossed-up rental profit pushes their total income over the higher-rate threshold suddenly pays 40% on the part above it - while still only getting 20% relief on their mortgage interest.

The lesson is that Section 24 has to be assessed against your whole income picture, not the single property in isolation. Modelling your full position with the Section 24 Calculator and the Rental Income Tax Calculator is the only reliable way to see where you really stand.

A second worked example: the basic-rate landlord pushed higher

Consider a landlord with a salary that leaves a little room before the higher-rate threshold. They own one rental with £15,000 of rent, £3,000 of non-interest expenses and £7,000 of mortgage interest.

Under the old rules, their taxable rental profit would have been £15,000 − £3,000 − £7,000 = £5,000, comfortably within the basic-rate band. Under Section 24, the interest is not deducted, so the taxable rental profit becomes £15,000 − £3,000 = £12,000. Stacked on top of their salary, part of that £12,000 now spills over the higher-rate threshold and is taxed at 40% rather than 20%. They still receive only a 20% credit on the £7,000 of interest. The result is a tax bill noticeably higher than the old maths would suggest - purely because the inflated profit figure dragged income into the higher band. The Buy-to-Let Profit Calculator shows how this plays out across a real deal.

Should you incorporate? Weighing the options

Because companies can still deduct mortgage interest in full, incorporation is the option landlords most often ask about. It is not a simple win, though, and the right answer is highly personal.

Transferring personally owned property into a company is itself a disposal, so it can trigger Capital Gains Tax and Stamp Duty Land Tax on the way in - sometimes a substantial upfront cost. Once inside the company, profits are taxed under Corporation Tax rules, and extracting that money as salary or dividends is taxed again in your own hands. Companies also face mortgage products with higher rates and more administration, including annual accounts and filings.

For a landlord with a large, heavily mortgaged portfolio and a long time horizon, incorporation can still work out cheaper overall. For someone with one or two lightly geared properties, the costs of incorporating often outweigh the Section 24 saving. Before making a move, compare the after-tax return of holding personally versus through a company, and take professional advice - this is one area where a mistake is expensive and hard to reverse. The mortgage calculator can help you compare the borrowing costs of each route.

The bottom line

Section 24 means mortgage interest no longer reduces your taxable rental profit - you get a 20% credit instead, which leaves higher-rate landlords paying more. The key is to understand your real, post-Section 24 position rather than assuming the old maths. Work it out with the Section 24 Calculator and Landlord Organiser, and take advice if you're considering structural changes. For the official rules, see GOV.UK on tax relief for residential landlords.

How Section 24 was phased in

Section 24 didn't arrive overnight. It was introduced gradually from April 2017, with the proportion of mortgage interest you could deduct in the old way falling each year - 75% deductible in 2017/18, 50% in 2018/19, 25% in 2019/20 - until from April 2020 none of it is deductible and the full 20% tax-credit system applies. That phasing softened the blow at first, but the change is now fully in effect, so every landlord with a mortgage feels it in full. Anyone running the old "interest as an expense" maths today will understate their tax.

Section 24: common questions

Does Section 24 apply to limited companies? No. Section 24 applies to individuals who own property personally. Companies can still deduct mortgage interest as a business expense - which is one reason some landlords hold property through a company, though incorporating brings its own tax and costs.

Does it affect commercial property? No. Section 24 applies to residential lettings. Furnished holiday lets had their own treatment, but those special rules have been removed, bringing most short-term lets in line with ordinary residential property.

Can I still deduct other expenses? Yes. Section 24 only affects mortgage interest. Letting agent fees, repairs, insurance, ground rent and other allowable costs are still deducted from rental income as normal.

How do I work out my tax under Section 24? Calculate tax on your rental profit without deducting interest, then subtract a credit of 20% of the interest (capped at your profit). Our Section 24 Calculator and Landlord Organiser do this automatically.

Planning around Section 24

Because Section 24 can quietly push you into a higher tax band, it pays to plan. Keep accurate records of all income and allowable expenses so you claim everything you're entitled to, review whether holding property jointly with a lower-earning partner helps, and factor the real after-tax return into any new purchase rather than the headline yield. For bigger decisions - incorporating, restructuring borrowing - take professional advice, because the right answer is very situation-specific. Our Rental Yield Calculator and Buy-to-Let Mortgage Calculator help you assess new deals with Section 24 in mind.