Section 24 Explained: How the Mortgage Interest Relief Rules Hit UK Landlords (2026)

Section 24 is the single biggest reason a profitable-looking buy-to-let can hand you a tax bill bigger than the cash it actually made. Nicknamed the "tenant tax" when it was introduced, it quietly reshaped how every mortgaged individual landlord in the UK is taxed — and with the Bank of England base rate settling at 3.75% in 2026 and interest costs still high, its bite is as sharp as ever. If you own rental property in your own name and have a mortgage on it, this is the rule that most affects whether your portfolio makes money after tax. Here's exactly how it works, a worked example, and what landlords are doing about it.

Section 24 of the Finance (No. 2) Act 2015 is the rule that stops individual UK landlords deducting mortgage interest and other finance costs from rental income before tax. Instead, landlords receive a basic-rate (20%) tax credit on those costs. It was phased in from April 2017 and has applied in full since April 2020.

What Section 24 Actually Changed

Before April 2017, a landlord treated mortgage interest like any other business expense. You took your rent, subtracted the interest and your running costs, and paid income tax only on what was left. It was simple and it mirrored how almost every other business is taxed.

Section 24 broke that link for residential landlords who own property personally. You can no longer deduct finance costs — mortgage interest, interest on loans to buy furnishings, and the fees of getting a loan — from your rental income. Instead, your entire rent counts as taxable income, and you receive a flat 20% tax credit based on your finance costs at the end of the calculation.

For a basic-rate taxpayer, the maths broadly nets out the same. For anyone paying tax at 40% or 45%, it does not — because you are taxed at your full marginal rate on income you can no longer offset, but you only get 20% of the interest back as a credit.

Old Rules vs Section 24: The Difference

The change is easiest to see side by side. Take a landlord with £24,000 of annual rent and £12,000 of mortgage interest (ignoring other costs for clarity), taxed at the higher rate of 40%:

Same rent, same interest, same property — but £2,400 more tax every year under Section 24. That extra bill is almost exactly 20% of the mortgage interest, which is the rule of thumb every higher-rate landlord should remember: Section 24 costs you roughly 20% of your annual interest.

The Tax-Band Trap Most Landlords Miss

The worked example above understates the damage for many landlords, because it assumes your tax band never changes. In reality, Section 24 pushes your gross rent onto your tax return as income. That inflated figure can:

• Tip you into the higher-rate band — a landlord who was comfortably a basic-rate taxpayer can be dragged over the £50,270 threshold by rent that used to be offset by interest.
• Erode your personal allowance — income above £100,000 loses £1 of allowance for every £2 earned, so the effective rate on that band is 60%.
• Trigger the High Income Child Benefit Charge and reduce other means-tested entitlements.

In the worst cases, a heavily mortgaged property that makes little or no real cash profit can still generate a tax bill — landlords have genuinely paid tax on properties that lost money. That is the structural quirk Section 24 created, and it is why leverage is now taxed so differently depending on how you hold property.

Who Section 24 Hits — and Who It Doesn't

The dividing line is ownership structure and leverage. A cash buyer pays no interest, so there is nothing for Section 24 to disallow. A company deducts interest normally. It is the mortgaged, individually-owned residential portfolio — the classic UK buy-to-let — that carries the full weight of the rule.

How Landlords Reduce the Impact

You cannot opt out of Section 24, but you can manage exposure to it. The main routes landlords use in 2026 are:

1. Hold property through a limited company (SPV). Companies still deduct mortgage interest in full and pay corporation tax — 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between, per HMRC. This is the biggest single reason new BTL purchases are increasingly bought in company structures. See our limited company buy-to-let SPV guide.
2. Reduce borrowing. Lower loan-to-value means less interest, and less interest means less disallowed cost. Paying down debt or buying at lower leverage directly shrinks the Section 24 penalty.
3. Share ownership with a lower-earning spouse. Transferring a share (or all) of a property to a spouse in a lower tax band can move rental profit onto a lower marginal rate. This needs care around stamp duty, mortgage consent and a formal declaration of trust.
4. Chase yield, not just growth. Higher-yielding, lower-leverage strategies — such as HMOs bought sensibly, or lower-value high-yield stock — soften the ratio of interest to income.
5. Take regulated advice before restructuring. Incorporating an existing portfolio can trigger capital gains tax and stamp duty, so the sums only work in specific circumstances. Always model it with a qualified tax adviser first.

Is Section 24 Making Landlords Sell?

For some, yes. Section 24 combined with higher interest rates, tighter stress-test rules on remortgaging and rising compliance costs has pushed a wave of highly-leveraged individual landlords either to sell or to restructure. But it has also made two groups of buyers stronger: cash and low-leverage investors, who dodge the rule entirely, and company buyers, who deduct interest as normal. The property itself hasn't changed — the tax treatment of how you own it has become one of the most important numbers in any deal.

Frequently Asked Questions

What is Section 24 for landlords?

Section 24 of the Finance (No. 2) Act 2015 stops individual UK landlords deducting mortgage interest and other finance costs from rental income before tax. Instead you receive a basic-rate 20% tax credit on those costs. It was phased in from April 2017 and has been in full force since April 2020.

Does Section 24 apply to limited companies?

No. It only applies to individuals owning residential property in their own name. Limited companies still deduct mortgage interest as a normal business expense before calculating taxable profit, which is why so many landlords now buy through an SPV.

How much does Section 24 cost a higher-rate landlord?

Roughly 20% of your annual mortgage interest. You are taxed at 40% on income you can no longer offset but only get a 20% credit back, so the net penalty is about 20% of the interest — around £2,400 a year on £12,000 of interest.

How can landlords reduce the impact of Section 24?

Common routes are holding property through a limited company, reducing borrowing, sharing ownership with a lower-earning spouse, focusing on higher-yield lower-leverage deals, and taking regulated tax advice before restructuring. Each has costs and trade-offs, so professional advice is essential.