Section 24 Mortgage Interest Restriction — What Landlords Need to Know in 2026

What Is Section 24?

Section 24 of the Finance Act 2015 fundamentally changed how individual residential landlords claim relief on mortgage interest and other finance costs. Before April 2017, landlords could deduct the full amount of mortgage interest from rental income before calculating their tax liability. Section 24 removed this deduction and replaced it with a basic rate tax credit worth 20% of the finance costs instead.

The change was introduced gradually between April 2017 and April 2020, when it became fully operational. Since 6 April 2020, no individual landlord can deduct mortgage interest directly from rental profits. Instead, they receive a credit equal to 20% of their total allowable finance costs, applied to reduce the final tax bill.

Who Is Affected?

Section 24 applies to individual landlords who let residential property — whether they own it personally, in a partnership, or through a trust. It does not apply to:

• Landlords letting commercial property.
• Properties held in a limited company (companies continue to deduct finance costs as a business expense and pay Corporation Tax on the net profit).
• Furnished Holiday Lettings — although this regime was abolished from April 2025 (see our FHL tax changes guide), properties that previously qualified still operated under different rules.

How the 20% Credit Works — A Worked Example

Suppose a higher rate (40%) taxpayer receives £18,000 in annual rent and pays £9,000 in mortgage interest. They have £1,000 in other allowable expenses.

Under the old rules (pre-2017):

• Rental profit: £18,000 − £9,000 interest − £1,000 expenses = £8,000
• Tax at 40%: £3,200

Under Section 24 (2026):

• Rental profit: £18,000 − £1,000 expenses = £17,000 (interest is not deducted here)
• Tax on £17,000 at 40%: £6,800
• Less 20% credit on £9,000 interest: −£1,800
• Net tax liability: £5,000

The landlord pays £1,800 more tax on the same income. For additional rate (45%) taxpayers, the gap is even wider.

The "Notional Income" Problem

A particularly painful effect of Section 24 is that mortgage interest is no longer removed before your income is assessed. This means landlords with high mortgage interest can appear to be higher rate taxpayers even when their actual cash profit is modest. It can also push total income above £100,000, causing loss of the Personal Allowance — a marginal effective rate of 60%.

Strategies Landlords Use

• Remortgaging to reduce interest costs — lower rates reduce the credit shortfall.
• Incorporation — transferring the portfolio to a limited company so that interest is again fully deductible. This involves Stamp Duty Land Tax on transfer and Capital Gains Tax considerations, so professional advice is essential.
• Increasing rents — to offset the higher tax burden, though this has wider affordability implications.
• Accelerating deductible repairs — to legitimately reduce the profit figure where possible.

Use our [rental income tax calculator](/rental-income-tax-calculator) to model how Section 24 affects your specific situation before making any structural decisions.

Summary

Section 24 has been fully in force since April 2020. Individual landlords receive only a 20% basic rate credit on mortgage interest — they do not deduct it from profit. The impact is most severe for higher and additional rate taxpayers. If you have not already reviewed your tax position in light of this change, 2026/27 is the time to do so.

Property Passport UK

Use Property Passport UK to organise Documents, Media, Tasks, Events, and Flags for a Property, and to share a Public Passport when you want buyers or permitted Stakeholders to see selected facts without exposing private Documents.