Section 24 is the rule that changed buy-to-let economics in the UK. Before 2017, landlords deducted mortgage interest from rent like any other cost. Now, individual landlords with residential property get a tax credit worth 20% of their finance costs instead. For basic-rate taxpayers, little changed. For higher-rate taxpayers, it can mean paying tax on profits they never made.
What is Section 24?
Section 24 of the Finance (No. 2) Act 2015 restricts relief for finance costs on residential property owned by individuals. Finance costs include:
- Mortgage interest
- Interest on loans to buy furnishings
- Mortgage arrangement and broker fees
Instead of deducting these costs, you calculate your rental profit without them, then reduce your tax bill by 20% of the finance costs.
Who does Section 24 affect?
- Affected: individuals, partnerships and trusts letting residential property
- Not affected: limited companies, which still deduct interest in full
- Not affected: commercial property
Furnished holiday lets used to be outside Section 24, but the special FHL regime was abolished from April 2025, so they’re now caught too.
The maths: basic vs higher-rate landlords
Take a landlord with £20,000 of rent, £3,000 of other expenses and £12,000 of mortgage interest. Their real profit is £5,000.
Basic-rate taxpayer
- Taxable rental profit: £20,000 − £3,000 = £17,000
- Tax at 20%: £3,400
- Less finance cost credit: 20% × £12,000 = £2,400
- Tax due: £1,000 — the same as 20% of the real £5,000 profit
Higher-rate taxpayer
- Taxable rental profit: £17,000
- Tax at 40%: £6,800
- Less finance cost credit: £2,400
- Tax due: £4,400 — that’s 88% of the real £5,000 profit
There’s a second sting. Because profit is measured before interest, your taxable income rises. That can push you into a higher tax band, trigger the High Income Child Benefit Charge, or start eroding your personal allowance above £100,000.
How the credit is limited
The 20% credit is calculated on the lowest of three figures: your finance costs, your property profits, or your adjusted total income above the personal allowance. Any finance costs you can’t use are carried forward to future years.
Changes ahead from April 2027
The November 2025 Budget announced separate tax rates for property income from April 2027, two percentage points above the standard rates. It also said the finance cost credit would rise in line with the new property basic rate. Check how this applies to your figures before planning around it.
Ways landlords reduce the Section 24 impact
- Hold new purchases in a limited company, where interest is fully deductible. Moving existing property into a company usually triggers Capital Gains Tax and stamp duty, so it rarely works for existing portfolios.
- Transfer a share to a lower-earning spouse, so more profit is taxed at basic rate. A Form 17 declaration may be needed.
- Make pension contributions to extend your basic-rate band.
- Pay down borrowing on the most expensive loans.
Each option has costs and risks, so model the numbers before acting.
Get Section 24 calculated correctly
SmartFiling’s ICAEW chartered accountants calculate Section 24 relief, carried-forward costs and joint ownership splits as standard. See our Landlord Accountant service or get a free quote.
Frequently asked questions
Where do I put mortgage interest on my tax return?
In the residential finance costs box on the UK property pages, not in allowable expenses.
Does Section 24 apply to limited companies?
No. Companies deduct finance costs in full when calculating Corporation Tax.
Can I claim the credit if I made a loss?
The credit is limited to your property profits, but unused finance costs are carried forward to future years.
