Section 24 Landlord Tax Changes: How Mortgage Interest Restriction Works in 2026

What Section 24 is

Section 24 of the Finance (No 2) Act 2015 changed the way mortgage interest is treated for individual landlords of residential property in the UK. Before Section 24, landlords could deduct mortgage interest from their rental income before calculating taxable profit, just like any other business expense. After Section 24, mortgage interest is no longer a deductible expense and is instead replaced with a 20% tax credit.

The change was phased in between April 2017 and April 2020, and from April 2020 onwards individual landlords get only the 20% credit. The old full deduction is gone.

Why it matters

For basic rate taxpayers (taxed at 20%), the change is broadly neutral. The old deduction at 20% gave them 20% relief on interest, and the new credit at 20% also gives 20% relief.

For higher rate taxpayers (taxed at 40%) and additional rate taxpayers (taxed at 45%), the change is significant. Under the old rules, the deduction effectively gave them 40% or 45% relief on interest. Under the new rules, they get only 20%. The difference is real money.

A bigger problem: because mortgage interest is no longer deducted before calculating profit, the headline rental profit is higher. This can push landlords into higher tax bands they would not otherwise be in. A landlord who was a basic rate taxpayer based on real profit can become a higher rate taxpayer based on Section 24 profit, even though their actual income has not changed. This effect is widespread for landlords with high mortgage interest.

Worked example

A higher rate taxpayer landlord with:

• Annual rental income: £20,000
• Mortgage interest: £12,000
• Other expenses (repairs, agent fees, insurance): £3,000

Under the old rules (pre-2017)

• Net rental profit = £20,000 - £12,000 - £3,000 = £5,000
• Tax at 40% = £2,000
• Net cash after tax = £5,000 - £2,000 = £3,000

Under Section 24 (2026)

• Taxable profit = £20,000 - £3,000 (no interest deduction) = £17,000
• Tax at 40% on £17,000 = £6,800
• Less 20% tax credit on interest = £12,000 × 20% = £2,400
• Net tax due = £6,800 - £2,400 = £4,400
• Net cash after tax = £20,000 - £12,000 - £3,000 - £4,400 = £600

In this example, the same landlord with the same actual cash flow goes from paying £2,000 in tax to paying £4,400 in tax. A 120% increase in tax burden.

Who is affected

Section 24 applies to:

• Individual landlords (including joint owners and partnerships)
• UK residential property held in their own name

Section 24 does NOT apply to:

• Limited company landlords (companies still get the full deduction)
• Furnished holiday lets (which are taxed under different rules with full interest deduction)
• Commercial property
• Non-UK property held by non-UK residents

How landlords have responded

Since Section 24 was announced in 2015, landlords have used several strategies:

Incorporate

Transferring the portfolio to a limited company restores the full mortgage interest deduction. Companies pay corporation tax on profit (currently 25% above £250,000, with marginal relief between £50,000 and £250,000). The downside is that incorporation triggers stamp duty land tax (because the company is buying the property from you) and possibly CGT on the transfer. For larger portfolios, incorporation is often worth it. For a single property, the costs usually exceed the benefit.

Pay down mortgage debt

Reducing the mortgage balance reduces interest, which directly reduces the Section 24 disadvantage. For landlords with surplus cash, paying down buy-to-let mortgages can be more tax-efficient than investing the cash elsewhere.

Sell the highest geared properties

Properties with high loan-to-value ratios suffer most from Section 24. Selling them and reinvesting in lower-geared property (or converting the cash to other investments) can reduce the overall tax bill.

Move to a furnished holiday let

Furnished holiday lets are not affected by Section 24 and retain the full interest deduction. Some landlords have converted properties to FHLs, although this requires meeting the qualifying tests (107 days let, 210 days available, fully furnished, short-term lettings). The previous government announced the abolition of the FHL tax regime from April 2025, so this strategy is no longer viable for new arrangements.

Switch to commercial property

Commercial property is not affected by Section 24. Some former residential landlords have switched to small commercial portfolios.

Sell up

Many smaller landlords have simply sold up since 2017. The Office for National Statistics has reported a steady decline in private landlord numbers since Section 24 was phased in.

What to do

If you are a landlord with a significant mortgage interest bill:

1. Calculate your actual Section 24 impact for the current and next two tax years

2. Compare incorporation costs against the saving if your portfolio is large enough

3. Consider paying down high-interest debt if you have surplus cash

4. Speak to a specialist landlord tax accountant before making any structural change

5. Be realistic about long-term yields post-Section 24

For property research, look up your portfolio addresses on Property Passport UK at [/search](/search) to see verified data including current EPC rating (relevant for MEES compliance), tenure, sold price history, and flood risk. The platform aggregates official data from HM Land Registry, the EPC Register, and the Environment Agency for every one of the 19.35 million properties in England and Wales.

Look up the property data behind your tax decisions

Property Passport UK shows verified data for every one of the 19.35 million properties in England and Wales: tenure, EPC, sold prices, flood risk, listed status. Use it to research before you buy a second home, plan a sale, or work out a tax position. Search any address at [/search](/search). Every fact comes from an official UK government source.

Related guides

• Stamp duty second home explained
• CGT on second home UK
• Private residence relief explained
• Inheritance tax on property