Section 24 Explained: The Landlord Mortgage-Interest Tax Change
Section 24 is one of the most significant tax changes to affect private landlords in England, Wales and Northern Ireland in recent years. It changed how landlords claim tax relief on mortgage interest — and the result is that many now pay tax on something much closer to their turnover than their real profit.
This guide explains what Section 24 is, how it works, who it affects, and the further change already scheduled for April 2027.
Educational information only — not tax advice. Figures are for the 2025/26 tax year (England/Wales/NI) and correct as of July 2026.
What is Section 24?
Section 24 refers to changes introduced in the Finance (No. 2) Act 2015 and phased in between April 2017 and April 2020. Before the change, landlords could deduct 100% of mortgage interest and finance costs from rental income before calculating tax. Since April 2020, most individual landlords can no longer deduct mortgage interest at all — instead they receive a basic-rate (20%) tax credit on those finance costs.
| Before Section 24 | Under Section 24 (now) | |
|---|---|---|
| Mortgage interest | Fully deducted before tax | Not deducted from income |
| Relief instead given as | — | A flat 20% tax credit |
| Tax charged on | True profit | Profit before interest |
| Who loses out | — | Higher- and additional-rate taxpayers |
Worked example — a higher-rate landlord
This is where the impact becomes clear. Take a landlord already paying tax at the higher (40%) rate:
| Line | Before Section 24 | Under Section 24 |
|---|---|---|
| Rental income | £20,000 | £20,000 |
| Less: other allowable expenses | −£3,000 | −£3,000 |
| Less: mortgage interest | −£12,000 | not deducted |
| Taxable profit | £5,000 | £17,000 |
| Tax at 40% | £2,000 | £6,800 |
| Less: 20% credit on £12,000 interest | — | −£2,400 |
| Tax due | £2,000 | £4,400 |
The landlord's real cash profit is £5,000 in both cases (£20,000 rent − £12,000 interest − £3,000 expenses). But the tax bill more than doubles, from £2,000 to £4,400. After tax, what was £3,000 of profit becomes just £600 — Section 24 has taken almost the entire real return. The more highly geared the property, the more severe the effect.
The income tax bands that apply (2025/26)
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Because taxable rental profit is now inflated (interest isn't deducted), Section 24 can also push landlords into a higher band, reduce or wipe out net profit, and affect mortgage affordability — the "paper profit" problem, where tax is due even when real income is low. Basic-rate taxpayers are broadly unaffected, since a 20% credit roughly equals a 20% deduction.
The April 2027 change — already scheduled
From the Autumn 2025 Budget (legislated in the Finance Act 2026), property income will be taxed at separate rates 2 percentage points above earned income from 6 April 2027, and the Section 24 credit rises to 22%:
| Band | Now (to 5 Apr 2027) | From 6 Apr 2027 |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
| Section 24 interest credit | 20% | 22% |
In the worked example above, the 2027 rates would lift the tax due from £4,400 to about £4,500. Modest per property, but it compounds across a portfolio — and limited companies are not affected by the new property rates.
Who is affected — and who isn't
| Section 24 applies to | It does not apply to |
|---|---|
| Individual landlords | Limited companies |
| Joint individual landlords | Corporate landlords |
| Buy-to-let mortgage holders | (Companies deduct interest in full) |
| "Accidental" landlords letting a former home |
This is the main reason many higher-rate landlords now buy through a limited company, where mortgage interest remains fully deductible — though a company brings its own costs and taxes profit again when it's withdrawn.
Why it was introduced — and why it's contested
The government's stated aims were to reduce the tax advantage of leveraged landlords, level the playing field with owner-occupiers, cool investor demand, and raise revenue from the private rented sector. Critics argue it effectively taxes turnover rather than profit, pushes smaller landlords out of the market, drives incorporation, and contributes to rent rises. Supporters counter that it discourages excessive borrowing and speculative investment and supports first-time buyers. Both views are widely held; the structural effects on the market are still playing out.
Key takeaways
- Section 24 replaced full mortgage-interest deduction with a flat 20% tax credit for individual landlords.
- Higher- and additional-rate taxpayers are hit hardest — tax can more than double on unchanged real profit.
- From April 2027, property income is taxed 2% higher (22/42/47%) and the credit rises to 22%.
- Limited companies are exempt, which is driving incorporation.
Want to see the exact impact on your own numbers, including the April 2027 rates? Our Landlord & BTL Toolkit includes a Section 24 tax calculator with built-in assumption cells for the scheduled changes.
Educational information only. This does not constitute tax, financial or legal advice. Figures are for 2025/26 (England, Wales & NI) and correct as of July 2026; announced changes are dated and subject to further legislation. Scotland sets some of its own rates. Always check current HMRC guidance or speak to a qualified accountant before acting.