Section 24 Mortgage Interest Explained: How It Works in 2026

Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how mortgage interest is treated for individual landlords in the UK. Fully phased in since April 2020, the restriction means landlords can no longer deduct mortgage interest as an expense from rental income. Instead, they receive only a basic rate (20%) tax credit.

For basic rate taxpayers, Section 24 makes no practical difference. For higher rate (40%) and additional rate (45%) taxpayers, the impact can be devastating — turning profitable properties into tax-loss-making investments and pushing some landlords into higher tax bands they would not otherwise reach.

This guide explains exactly how Section 24 works, walks through worked examples at different tax bands, and sets out the strategies landlords use to mitigate its impact. Latch helps you model the effect of Section 24 on your portfolio and track finance costs accurately for your tax return.

What Is Section 24?

Section 24 restricts the tax relief individual landlords receive on finance costs — primarily mortgage interest. Before Section 24, landlords could deduct mortgage interest from rental income as an expense, just like any other business cost. This reduced their taxable profit.

Under Section 24, mortgage interest is no longer deducted from rental income. Instead, your taxable rental profit is calculated as if you had no mortgage at all, and you then receive a 20% tax credit on the finance costs.

This has two significant effects:

1. Your taxable rental income is higher (because mortgage interest is no longer deducted), which can push you into a higher tax band
2. You only receive relief at 20%, even if you pay tax at 40% or 45%, meaning you bear the difference

History: The Phased Introduction

Section 24 was announced by Chancellor George Osborne in the July 2015 Budget and was phased in over four years:

Since 6 April 2020, individual landlords receive no deduction for mortgage interest. The full amount of finance costs now attracts only the 20% basic rate tax credit.

How the 20% Tax Credit Works

The calculation works in three steps:

1. Calculate rental profit ignoring finance costs: Add up all rental income and subtract all allowable expenses except mortgage interest and other finance costs
2. Calculate tax at your marginal rate: Your rental profit (with no interest deduction) is added to your other income and taxed at your marginal rate
3. Deduct the 20% tax credit: You receive a tax credit equal to 20% of your total finance costs, which reduces your tax bill

Worked Example: Basic Rate Taxpayer

For a basic rate taxpayer, Section 24 has no net effect. The 20% tax credit exactly offsets the tax they would have saved by deducting the interest.

The net tax is identical: £1,000. For basic rate taxpayers, Section 24 is largely a paperwork change rather than a financial one.

Worked Example: Higher Rate Taxpayer

For a higher rate taxpayer, the impact is severe. They pay 40% tax on the full rental profit but only receive 20% relief on finance costs.

Worked Example: Additional Rate Taxpayer

For an additional rate taxpayer (45%), the effect is even more pronounced:

The Tax Band Push Effect

One of the most damaging aspects of Section 24 is that it can push landlords into a higher tax band. Because mortgage interest is no longer deducted, your taxable income appears higher than your actual economic profit.

Example: Pushed from Basic to Higher Rate

Consider a landlord with:

• Employment income: £42,000
• Rental income: £15,000
• Allowable expenses (excl. mortgage): £3,000
• Mortgage interest: £8,000

Who Is Most Affected?

Section 24 disproportionately affects certain landlords:

• Higher and additional rate taxpayers: The 20% gap between the tax credit and their marginal rate creates additional tax
• Landlords with high loan-to-value mortgages: The more interest you pay relative to rent, the bigger the impact
• Landlords near a tax band threshold: Even a modest amount of non-deductible interest can push you into a higher band
• Landlords in expensive areas: London and South East landlords often have larger mortgages relative to rental income
• Portfolio landlords with multiple mortgaged properties: The cumulative effect across many properties can be enormous

Basic rate taxpayers with no risk of being pushed into a higher band are essentially unaffected.

Strategies to Mitigate Section 24

Landlords have several options to reduce the impact of Section 24:

1. Incorporate: Transfer Properties to a Limited Company

Limited companies are not affected by Section 24. A company can deduct mortgage interest in full as a business expense before calculating Corporation Tax at 25%. However, incorporation involves significant costs:

• Stamp Duty Land Tax on the transfer (at the higher rate including the 5% surcharge)
• Potential Capital Gains Tax on the disposal by the individual
• Higher mortgage rates for limited company buy-to-let products
• Additional administrative costs (company accounts, Corporation Tax returns, confirmation statements)
• Possible Incorporation Relief under Section 162 TCGA 1992 (but strict conditions apply)

2. Pay Down Mortgage Debt

Reducing your mortgage balance reduces the interest you pay, which directly reduces the Section 24 impact. This is particularly attractive if you have savings earning low interest rates. However, check for early repayment charges on your mortgage.

3. Increase Rent

Increasing rent improves your rental profit before finance costs, which means the Section 24 impact is proportionally smaller. However, rent levels are determined by the local market and there are limits to how much you can charge.

4. Transfer Ownership to a Lower-Earning Spouse

If your spouse or civil partner is a basic rate taxpayer (or non-taxpayer), transferring beneficial ownership of the property can mean the rental income is taxed at a lower rate. Transfers between spouses are exempt from Capital Gains Tax and Stamp Duty.

5. Sell Unprofitable Properties

If Section 24 means a property is costing you more in tax than it generates in profit, selling may be the rational decision. Factor in Capital Gains Tax, the loss of future rental income, and potential capital appreciation before deciding.

6. Maximise Other Allowable Expenses

Ensuring you claim every other allowable expense reduces your taxable profit and partly offsets the Section 24 impact. Many landlords overlook expenses like travel costs, phone bills, software subscriptions (including Latch), and professional fees.

Limited Company Advantage

The key advantage of holding rental property in a limited company is that Section 24 does not apply. A limited company can deduct mortgage interest in full before calculating Corporation Tax at 25%.

The limited company structure is not automatically better. The double taxation on extracting profits (Corporation Tax plus income tax on dividends) can negate the mortgage interest advantage for some landlords. The decision depends on your specific circumstances, tax band, and whether you need to draw all the profits out or can leave them in the company.

How Latch Helps with Section 24

Latch automatically tracks your mortgage interest payments and calculates the 20% tax credit separately from your other allowable expenses. This means your tax reports clearly show:

• Total rental income by property
• Allowable expenses (deductible in full)
• Finance costs (for the 20% tax credit calculation)
• Net rental profit before and after the tax credit
• The actual tax impact of Section 24 on your portfolio

This clarity makes it straightforward to complete the property pages of your Self Assessment return and helps your accountant prepare accurate tax computations.