Section 24: how does it affect landlords?

Rent may cover your mortgage and running costs, yet leave less income than you expect once tax is due. For landlords who own residential property personally, Section 24 changes how mortgage interest affects that tax bill.

This guide explains the impact of Section 24 in 2026/27 and shows the difference between taxable profit and cash left over. For the wider borrowing picture, start with how buy-to-let mortgages work.

What is Section 24?

Section 24 of the Finance (No. 2) Act 2015 changed mortgage interest relief for individual landlords who let residential property. Instead of deducting eligible finance costs from rental income, you claim a reduction in the resulting Income Tax bill. The change began in April 2017 and took full effect in April 2020.

For 2026/27, the reduction uses the 20% basic rate, subject to limits. Eligible finance costs include mortgage interest and some costs of arranging borrowing. Meanwhile, allowable running expenses, such as agent fees, insurance and qualifying repairs, still reduce rental profit. However, capital improvements do not qualify as ordinary running expenses.

Which landlords does Section 24 affect?

The restriction can apply whether you let one home or several. Personal ownership includes:

By contrast, companies paying Corporation Tax fall outside this particular restriction. Borrowing used wholly for commercial property is also outside its scope; mixed-use borrowing may need a split.

The furnished holiday lettings exception ended for Income Tax from 6 April 2025. Holiday letting therefore does not automatically avoid Section 24. HMRC’s scope guidance also covers trusts and estates.

How mortgage interest relief works

The calculation separates rental profit from relief for finance costs. Work through it in this order:

STEP 1

Work out your rental profit

Take allowable non-finance expenses off rental income. However, keep mortgage interest separate. Our overview of buy-to-let costs can help with the wider budget, although not every cash cost is tax-deductible.

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STEP 2

Calculate the tax on that profit

Then, add the taxable rental profit to your other taxable income. Your allowances and tax bands determine how much Income Tax it attracts.

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STEP 3

Apply the finance-cost tax reduction

For an individual with one property business, the reduction is generally 20% of the lowest of these amounts:

• Eligible finance costs, including amounts brought forward.
• Property business profits after brought-forward losses.
• Your adjusted total income.

For this calculation, adjusted total income excludes savings and dividend income. It also takes account of relevant losses, reliefs and personal allowances. The reduction cannot create a tax refund.

Unused qualifying finance costs may carry forward, as HMRC’s calculation guidance explains. More than one property business can require further calculations.

A worked example of Section 24

For example, consider two landlords with the same rent, costs and mortgage interest. One pays 20% on all the rental profit; the other pays 40%.

This example uses the 2026/27 Income Tax rates for England, Wales and Northern Ireland. Scottish taxpayers pay different rates, as explained below.

It assumes each landlord’s other income has already used their personal allowance. All rental profit falls within the tax band shown, and each landlord qualifies for the full finance-cost tax reduction. The figures also exclude capital repayments and other personal tax adjustments.

Both have £7,000 left after running costs and interest, before tax. However, the same £1,600 reduction leaves different tax bills. Cash remaining is rent minus running costs, interest and tax; it is not the £15,000 taxable profit.

Actual income may span several bands. The figures illustrate HMRC’s calculation method, rather than a personal tax estimate.

Why your tax band matters

Before Section 24, landlords could deduct eligible mortgage interest when calculating rental profit. Higher-rate taxpayers therefore received relief at their higher tax rate. For 2026/27, the finance-cost tax reduction instead uses the 20% basic rate, subject to limits.

However, Section 24 can also affect basic-rate taxpayers. You calculate taxable rental profit without deducting mortgage interest or other restricted finance costs.

As a result, some income may fall into a higher tax band. This can also affect income-based allowances. Therefore, check the full tax calculation rather than relying on the band that applies to your salary.

What landlords can review next?

Review your mortgage and running costs

First, review your mortgage costs, running expenses and cash left after tax. A lower rate may help, but early repayment charges or new fees could outweigh the saving. For a buy-to-let remortgage, compare the total cost over the time you plan to keep the deal.

Assess ownership before making any changes

Company ownership needs a wider calculation covering borrowing, administration, company taxes and taking money out personally. In addition, transferring an existing property can trigger tax and legal costs. Therefore, compare personal and limited company ownership before treating incorporation as a solution.

Check your position with an accountant

Finally, ask a qualified accountant or tax adviser to review your rental figures, other income and unused finance costs. They can assess your tax position and any ownership change. Muttuo can then help you explore borrowing that fits those plans.

For forecasts beyond this tax year, also consider the announced property-income tax changes from April 2027. Do not carry the example’s rates into later years without checking the rules.

Common questions about Section 24