Glossary

Section 24

Krishna Prasad Dahal, Chartered Accountant

Reviewed by Krishna Prasad Dahal FCCA, ACA (ICAEW), FCA (ICAI India)ICAEW Council Member · Last reviewed

Definition

Section 24 is the common name for the rule that stops individual landlords deducting mortgage interest and other finance costs from residential rental income. Instead, they get a tax reduction worth 20% (the basic rate) of those costs, so higher and additional rate taxpayers get less relief than a deduction would give. It comes from section 24 of the Finance (No. 2) Act 2015 and has applied in full since 6 April 2020.

What it covers

The rule applies to individual landlords, including those letting through a partnership. Finance costs include mortgage interest, interest on loans to buy furnishings, and fees for taking out or repaying mortgages or loans. Companies and commercial property are outside the rule, one reason some landlords look at buy-to-let through a limited company.

Worked example

A landlord paying 40% tax on all their rental profit has £20,000 of rent, £4,000 of other allowable costs and £8,000 of mortgage interest. Tax is charged on £16,000 of profit, £6,400 at 40%, then reduced by 20% of the interest (£1,600), leaving £4,800. With the interest deductible, the bill would be £3,200.

From April 2027

Property income gets its own rates from 6 April 2027 (22%, 42% and 47% in England, Wales and Northern Ireland), and the finance cost reduction will be given at the 22% property basic rate.

SmartFiling’s landlord accountant service prepares rental accounts and returns.

Related questions

  • Does Section 24 apply to a limited company? No. Companies are outside the restriction.
  • Do I need to file a Self Assessment tax return? A return is needed once rental income reaches £2,500 after expenses or £10,000 before, and the Section 24 reduction is claimed on it.

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