Section 24 Explained: How the Mortgage Interest Tax Relief Cut Hits England Landlords in 2026

If you let property with a buy-to-let mortgage, Section 24 mortgage interest tax relief is probably the single biggest reason your tax bill feels heavier than your actual profit. Introduced by the Finance Act 2015 and fully phased in by April 2020, Section 24 stopped individual residential landlords from deducting mortgage interest as an expense. Instead, you now get a flat 20% basic-rate tax credit on your finance costs, a change that quietly pushes thousands of landlords into higher tax bands and, in some cases, leaves them paying tax on a loss.

This guide explains, in plain English, what Section 24 does, who it affects, how it phased in, how to calculate the hit for the 2025/26 tax year, the knock-on effects most landlords miss, and what your realistic options are in 2026.

What is Section 24 mortgage interest tax relief?

Before April 2017, a landlord could simply subtract all allowable finance costs, mortgage interest, loan arrangement fees, interest on loans to buy furnishings, from rental income before calculating taxable profit. That was a genuine deduction, worth your marginal rate of tax (20%, 40% or 45%). A higher-rate landlord paying £10,000 in mortgage interest got £4,000 of tax relief on it.

Section 24 of the Finance Act 2015 (legislation.gov.uk) replaced that deduction with a tax reducer:

• You can no longer deduct finance costs from rental income.
• Instead, you calculate tax on the full rental profit, then reduce your final tax bill by a credit equal to 20% of your finance costs.

For a basic-rate (20%) taxpayer, the maths roughly nets out. For higher-rate (40%) and additional-rate (45%) taxpayers, it does not, because you are taxed on income you never really kept, and only get relief back at 20%.

HMRC’s guidance on the restriction is set out in Tax relief for residential landlords: how it’s worked out on GOV.UK, with worked examples mirroring the structure below.

Why the government introduced it

The policy aim, announced in the 2015 Summer Budget, was to “level the playing field” between landlords and owner-occupiers (who get no relief on their own mortgage interest) and to cool the buy-to-let market. Whether it achieved that is debated, but the legal position is settled: Section 24 is permanent law, survived a judicial review challenge (Cherie Blair’s “Axe the Tenant Tax” case, refused permission in 2016), and is not on any repeal timetable for 2026.

Which costs count as “finance costs”?

The 20% credit applies to most borrowing costs, not just the headline mortgage interest:

• Interest on buy-to-let mortgages and loans secured on the property.
• Interest on loans taken out to buy furnishings or fund improvements to the let property.
• Mortgage arrangement fees, broker fees, and incidental costs of obtaining or repaying loan finance.

It does not apply to running costs such as letting agent fees, repairs, insurance, ground rent, accountancy or service charges, those remain fully deductible expenses set against rental income in the normal way. Our landlord allowable expenses checklist walks through exactly what you can still deduct in full.

How Section 24 phased in (2017–2020)

Section 24 did not arrive overnight. It was tapered over four tax years, with the deductible portion shrinking each year and the 20% credit growing to replace it. Many landlords only felt the full weight from 2020/21, which is why the “shock” is still landing for people whose interest costs have since risen with higher base rates.

From the 2020/21 tax year, none of your mortgage interest is deductible, every penny is dealt with through the 20% reducer. That is the regime in force for 2025/26 and 2026.

How Section 24 is calculated: a worked example for 2025/26

Take a higher-rate landlord with a single let:

• Rental income: £18,000
• Allowable running costs (agent, repairs, insurance): £3,000
• Mortgage interest: £9,000

Old system (pre-2017): Profit = £18,000 − £3,000 − £9,000 = £6,000 taxable. Tax at 40% = £2,400.

Section 24 system (2025/26): Profit = £18,000 − £3,000 = £15,000 taxable. Tax at 40% = £6,000. Then deduct the 20% finance-cost credit: 20% × £9,000 = £1,800. Final tax = £4,200.

That is £1,800 more tax on the identical property, purely because of how the relief is structured. The headline profit figure has also jumped from £6,000 to £15,000, which can drag you across thresholds for the higher-rate band, the High Income Child Benefit Charge, or the personal allowance taper above £100,000.

How the 20% credit is actually applied

The reducer is the lower of three figures, and this is where filing errors creep in. HMRC limits the credit to 20% of the lowest of:

1. Your finance costs for the year (plus any brought-forward unused costs).
2. Your property profits for the year (after losses).
3. Your adjusted total income above the personal allowance (income that exceeds your personal allowance, i.e. income actually taxable).

If your finance costs are higher than your property profit, common in a high-interest year, the excess is not lost. It is carried forward to set against future years’ relief. But you can never recover more than 20%, and you can never turn the credit into a cash refund.

The two traps higher-rate landlords miss

1. Inflated profit pushes you up a band. A landlord whose “real” profit is modest can be tipped into the higher-rate band by the grossed-up figure, meaning income is taxed at 40% that previously would have sat at 20%, and the relief only comes back at 20%. The gap is the Section 24 penalty.
2. You can be taxed on a loss. If your mortgage interest is very high relative to rent, your “taxable profit” under Section 24 can exceed your real economic profit. A landlord whose property genuinely loses money in cash terms can still owe income tax on paper, the single harshest feature of the regime.

Who Section 24 does and does not affect

Affected:

• Individual landlords letting residential property in England (and the rest of the UK).
• Partnerships and trusts letting residential property.
• Furnished holiday lettings, the FHL regime was abolished from 6 April 2025, so holiday lets now face the same Section 24 restriction rather than the old full-deduction treatment they used to enjoy.

Not affected:

• Limited companies. A company deducts mortgage interest as a normal business expense against corporation tax, so Section 24 does not bite. This is the main driver behind landlords incorporating, see our guide on owning rental property in a limited company for the trade-offs, because incorporating brings its own costs (capital gains tax on transfer, stamp duty, higher mortgage rates, and dividend tax when you extract the income).
• Mortgage-free landlords. No finance costs means nothing to restrict.
• Commercial property let on its own (Section 24 targets residential finance costs).

Section 24 and joint ownership

For jointly owned property, finance costs are split in line with the beneficial ownership share, usually 50/50 for spouses unless a valid declaration of trust and Form 17 say otherwise. Couples sometimes shift more of the income (and the matching finance cost) to the lower earner to reduce the Section 24 bite, but this must reflect genuine beneficial ownership; HMRC will not accept a paper-only allocation. Take advice before restructuring ownership.

What can England landlords actually do in 2026?

Section 24 is settled law and there is no sign of repeal. Realistic responses are:

• Keep immaculate records. You can only claim the 20% credit on costs you can evidence. A clean log of every interest payment, arrangement fee and finance charge is the foundation, our finance costs worksheet is built for exactly this, including the carry-forward tracking that trips people up.
• Review the limited-company question carefully. Incorporation can help higher-rate landlords with large, highly geared portfolios, but it is rarely worth it for one or two properties. Model the capital gains tax and stamp duty on transfer first, and get accountant advice before moving anything.
• Reduce gearing where it makes sense. Lower borrowing means a smaller restricted cost, though tying up capital has its own opportunity cost, and overpaying a low-rate mortgage may not be the best use of funds.
• Use a spouse’s allowances. Where one partner is a basic-rate taxpayer, shifting beneficial ownership (properly documented) can keep more profit taxed at 20%, where Section 24 broadly nets out.
• Plan around the thresholds. If Section 24 is nudging you towards £50,270 or £100,000, pension contributions or the timing of deductible repairs can sometimes keep you below a cliff edge such as the personal allowance taper or the High Income Child Benefit Charge.

A note on Making Tax Digital

Separately from Section 24, Making Tax Digital for Income Tax (MTD ITSA) is phasing in for landlords. From April 2026, landlords with qualifying property and self-employment income over £50,000 must keep digital records and file quarterly updates; the £30,000 threshold follows from April 2027. Section 24 does not change under MTD, but the way you report your finance costs and credit will move to digital quarterly submissions, another reason to keep your interest records clean and software-ready now rather than scrambling at year end.

How Section 24 interacts with the Renters’ Rights Act

Section 24 is firmly a tax matter, not a Renters’ Rights Act change, but the RRA 2025, in force since 1 May 2026, affects the income side of your calculation. With rent increases now limited to once a year via the prescribed Section 13 process, and the First-tier Tribunal unable to set rent above the figure you proposed, your ability to offset rising finance costs through rent is more constrained than it was. That makes accurate forecasting and a defensible rent figure more important than ever.

If you are reviewing rents to keep pace with mortgage costs, do it correctly: see how to increase rent legally after the Renters’ Rights Act 2025 and Section 13 rent increases explained. And if rising costs are forcing a harder decision about whether to keep a let going, our overview of how tenancies end in England in 2026 sets out the lawful routes now that Section 21 is gone.

A note on the numbers: the worked examples above use illustrative figures and the standard England/Wales/NI tax bands for 2025/26. Your own position depends on your total income, other reliefs, the split of beneficial ownership, and the precise mix of finance costs. Always check the live figures against GOV.UK or confirm with an accountant before filing.

Frequently asked questions

Is Section 24 still in force in 2026?

Yes. Section 24 has been fully in force since the 2020/21 tax year and applies in full for 2025/26 and 2026. There is no published plan to repeal or reverse it, and a judicial review challenge to the policy failed in 2016. Treat it as the permanent regime when forecasting.

Does Section 24 apply if I am a basic-rate taxpayer?

The mechanics apply to everyone, but the effect is broadly neutral for a genuine basic-rate taxpayer, because the 20% credit matches the 20% rate. The danger is that adding your full rental profit (with no interest deduction) to your other income can tip you into the higher-rate band, at which point part of your income is taxed at 40% while relief is still only 20%. Always check your total income, not just the property figures.

Do limited companies pay Section 24?

No. Section 24 restricts finance-cost relief for individuals, partnerships and trusts. A limited company deducts mortgage interest as an ordinary business expense against corporation tax. This is the main tax attraction of incorporating, but transferring existing personally owned property into a company can trigger capital gains tax and stamp duty land tax, so model the full picture in our limited company buy-to-let guide before acting.

Can Section 24 make me pay tax on a loss?

Yes, that is its harshest feature. Because mortgage interest is no longer deducted before calculating taxable profit, a highly geared property that loses money in cash terms can still show a taxable “profit.” The 20% credit softens but does not always eliminate the bill, so it is possible to owe income tax in a year your bank balance went backwards.

Are mortgage arrangement and broker fees covered by the 20% credit?

Yes. The restriction applies to finance costs generally, which includes mortgage interest, loan arrangement fees, broker fees and other incidental costs of obtaining or repaying property finance. Keep evidence of every one, because the credit can only be claimed on costs you can substantiate.

What happens to finance costs I cannot use this year?

If your finance costs exceed your property profits or your taxable income above the personal allowance, the unused amount is carried forward to future tax years rather than lost. It can then form part of the credit calculation in a later year. Tracking the carry-forward accurately across years is one of the easiest things to get wrong on a return.

Coming soon

Tenancy Pilot is launching soon with a tax and finance suite built for England landlords, log every mortgage interest payment, arrangement fee and finance cost against the right property, and the tool will model your Section 24 tax credit automatically, including the carry-forward, so there are no surprises at self-assessment. With Making Tax Digital arriving for landlords, your records will already be in the right shape.

Join the waitlist to model your Section 24 position the moment we launch.

This article is general information, not legal or tax advice. Section 24 and the bands cited can change; always check GOV.UK and legislation.gov.uk, and consult a qualified accountant or solicitor about your own circumstances.

This is general information, not legal advice. Rules change and your circumstances may differ, always check GOV.UK and legislation.gov.uk, and consult a solicitor before acting.