Section 24 and mortgage interest relief
Section 24 stopped landlords deducting mortgage interest from rental income. Instead you get a basic-rate tax credit worth 20% of the interest. Your taxable rental profit is therefore calculated before any finance costs, which can push you into a higher tax band on income you never actually received.
What actually changed
Until 2017, a landlord deducted mortgage interest like any other expense. Rent in, interest and costs out, tax on what was left.
Section 24 of the Finance (No. 2) Act 2015 phased that out between 2017 and 2020. Finance costs are no longer an expense at all. You are taxed on rental income after other expenses but before interest, and then given a tax credit worth 20% of the interest.
For a basic-rate taxpayer the maths usually comes out roughly the same. For a higher-rate taxpayer it does not, and the gap can be severe.
A worked example
A landlord with £30,000 of rent, £5,000 of running costs and £14,000 of mortgage interest, who also earns £45,000 from employment.
| Old rules | Under Section 24 | |
|---|---|---|
| Rental income | £30,000 | £30,000 |
| Running costs | −£5,000 | −£5,000 |
| Mortgage interest | −£14,000 | Not deductible |
| Taxable rental profit | £11,000 | £25,000 |
| Tax at 40% | £4,400 | £10,000 |
| Section 24 credit (20% × £14,000) | −£2,800 | |
| Tax actually payable | £4,400 | £7,200 |
Same property, same rent, same mortgage, £2,800 more tax. And the £25,000 of "profit" is counted as income for the personal allowance taper, child benefit charge and student loan thresholds, even though £14,000 of it went straight to the lender.
Who it hurts most
Higher and additional rate taxpayers, obviously. But also basic-rate taxpayers whose inflated rental profit tips them into the higher band: which is the part that catches people out, because they were basic rate before Section 24 and are not any more.
Heavily geared portfolios suffer worst. A landlord with little or no mortgage is barely affected.
It also drags people over £50,000 for the High Income Child Benefit Charge and over £100,000 where the personal allowance starts to taper at an effective 60%.
What you can actually do about it
Incorporating is the option everyone mentions. Companies still deduct interest in full. But transferring existing property to a company usually triggers Stamp Duty and Capital Gains Tax immediately, so the arithmetic rarely works for an established portfolio. It is a calculation, not a strategy.
Transferring a share to a lower-earning spouse can help, since the profit is then taxed in their band. This needs doing properly, with a declaration of trust and a Form 17 where the split is not 50/50.
Pension contributions reduce your adjusted net income, which can claw back the personal allowance or the child benefit.
And paying down debt now has a better effective return than it used to, precisely because the interest is no longer fully relieved.
This guide is general information, current at 10 November 2026. Tax rules change and depend on your circumstances. Please take advice before acting on it.