Mortgage interest tax relief landlords used to work in a straightforward way. Under the old rules, most buy-to-let mortgage interest could reduce your rental profit before tax. Now, for many UK landlords, the tax calculation can show a higher taxable profit even when your real-world cash flow has not improved, because buy-to-let mortgage tax deductions for interest no longer reduce rental profit in the same way.
This change is commonly referred to as Section 24 tax landlords. In plain terms, Section 24 applies to individuals (and some partnerships) letting residential property. Instead of deducting mortgage interest from rental income, mortgage interest tax relief landlords is generally given as a basic-rate tax reduction, usually 20%, and it comes with limits that can bite hardest if you pay higher-rate or additional-rate tax.
Next, we’ll break down what Section 24 does and does not cover, in plain English, so you can see exactly where your tax bill may shift.
What is Section 24 and what changed
Section 24 is the rule that changed mortgage interest tax relief for landlords who own residential buy-to-let property personally. The key difference is how the tax calculation treats finance costs such as mortgage interest.
Before, finance costs usually reduced your rental profit for tax. If you earned £X in rent and paid £Y in interest, you generally paid tax on £X minus £Y (after other allowable expenses). That meant the relief value matched your tax band.
Now, you typically calculate your property profit without deducting those finance costs. Instead, you claim a basic-rate tax reduction, usually equal to 20% of the finance costs that no longer reduce your profit. This matters because a 20% reduction can be less valuable if you pay higher-rate or additional-rate tax, and it can be limited depending on your property profits and overall income.
This change phased in over several tax years and is now fully in place, so the 20% tax reduction approach is the default position for most individual landlords affected.
You feel the impact most if you have a larger mortgage, you sit near a tax band threshold, or your rental income pushes you into higher-rate tax. In those cases, your taxable profit can rise on paper even if your cash position has not improved.
To see why the numbers can shift so sharply, the next step is understanding what HMRC counts as finance costs.
What counts as mortgage interest tax relief and finance costs
For Section 24, the starting point is knowing what HMRC treats as finance costs. These are the costs linked to borrowing money to buy, improve, or refinance a residential let. They are not the same as general property expenses like repairs or letting agent fees.
Here is a quick guide to what usually counts and what does not.
| Category | Included (typical) | Not included |
| Mortgage payments | Mortgage interest | Capital repayments |
| Borrowing fees | Arrangement or product fees, broker fees (when linked to the loan) | Fees not linked to borrowing |
| Other interests | Interest on loans used for the rental business (with clear evidence) | Mixed-use or personal borrowing |
Capital repayments never qualify, even though they affect cash flow. Keep lender interest statements and fee documents, and make sure your records clearly separate interest from capital.
Next, we’ll break down how the 20% tax reduction is calculated and where the cap can reduce relief.
How the 20% tax reduction works and the limits
Once Section 24 applies, mortgage interest does not reduce your taxable rental profit in the usual way. Instead, you get a basic-rate tax reduction. The easiest way to understand it is to follow the calculation order.
Step 1 Work out your property profit
Add up your rental income for the tax year, then subtract allowable running costs such as letting agent fees, insurance, repairs, safety checks, and other day-to-day expenses. Do not subtract mortgage interest or other finance costs at this stage. The figure you end up with is your property profit for tax purposes.
Step 2 Work out your basic-rate tax reduction
You then calculate a tax reduction that is usually 20% of your finance costs. However, it is not always 20% of the full interest you paid. The reduction is based on 20% of the lowest of these three figures:
- your allowable finance costs
- your property profit for the year
- your adjusted total income (in simple terms, the income figure HMRC uses after certain reliefs)
Why the lowest-of rule matters
This is where landlords get caught out. If your rental business makes a small profit, or your overall income position limits the calculation, the tax reduction can be capped. That can leave you paying tax on a profit figure that feels higher than your real cash profit.
If you want an accountant to model your Section 24 position and help you plan profit extraction and ownership structure, speak to eAccounts’ landlord team.
If your rental tax feels messy or unpredictable, eAccounts landlord accountants can handle the numbers, keep you compliant, and help you keep more of what you earn.
Worked example UK landlord
Here’s a realistic, simple example that shows the Section 24 difference without overcomplicating it.
Scenario
- Annual rent received: £18,000
- Allowable running costs (repairs, insurance, agent fees, safety checks): £4,000
- Mortgage interest paid: £10,000
- The landlord is close to the point where extra income tips them into higher-rate tax
Cash view (what you actually have left)
| Item | Amount |
| Rent received | £18,000 |
| Less running costs | £4,000 |
| Less mortgage interest | £10,000 |
| Cash profit | £4,000 |
Tax view under Section 24 (what gets taxed)
Step 1 Work out taxable property profit before finance costs:
| Item | Amount |
| Rent received | £18,000 |
| Less running costs | £4,000 |
| Taxable property profit (before interest) | £14,000 |
Step 2 Apply the basic-rate tax reduction (simplified):
| Item | Amount |
| Mortgage interest (finance costs) | £10,000 |
| 20% tax reduction (potential) | £2,000 |
Why the bill can jump
If that £14,000 taxable profit falls into higher-rate tax because you are already near the threshold, the tax can look like this.
| Item | Amount |
| Tax on £14,000 at 40% | £5,600 |
| Less 20% tax reduction | £2,000 |
| Tax due on property income | £3,600 |
The practical surprise is that you made £4,000 in cash profit, but you could owe £3,600 in tax. The other shock is the higher taxable profit figure, which can push more of your income into higher-rate tax even though your cash position did not improve.
Next, we’ll look at knock-on effects Section 24 can have beyond the headline tax bill.
Want to know exactly how Section 24 affects your after-tax profit? Speak to eAccounts landlord accountants for a clear breakdown and a plan that fits your portfolio.
Knock-on effects landlords should check
Section 24 does not just change the tax on one property. Because it increases the taxable profit figure on your Self Assessment, it can affect the rest of your tax position too. These are the main knock-on effects worth checking.
- You can be pulled into a higher tax band: Even if your cash profit stays the same, your taxable rental profit is higher because interest no longer reduces it in the profit calculation. That extra taxable income can push part of your income into higher-rate or additional-rate tax, which makes the 20% tax reduction feel less valuable.
- Adjusted net income can shift: A higher taxable profit figure can increase your adjusted net income. In general terms, that can affect how much of certain allowances or reliefs you keep, which is why landlords close to key thresholds often feel Section 24 more sharply.
- One high-interest property can distort the whole return: If you have multiple properties, Section 24 is not assessed property by property. The figures feed into your overall UK property business position for the year. One highly leveraged property can raise the taxable profit figure and change the outcome across your wider return.
A quick check that helps is to compare your cash view (after interest) vs your tax view (before interest plus the 20% reduction). If the gap keeps widening, Section 24 is likely eating into your real returns.
Next, we’ll tackle the big question landlords ask. Does using a limited company fix this.
Individuals vs limited companies: what’s different in practice
Section 24 applies to individual landlords (and relevant partnerships) who let residential property. That is why personally owned buy-to-let can show a higher taxable profit on paper, even when your cash position has not improved.
A limited company works differently. Company rental profits are generally calculated under corporation tax rules, and mortgage interest is typically treated as a finance cost of the business.
In many cases, that means interest can reduce the company’s taxable profit in a way that feels closer to the old personal rules. That said, companies have their own tax and finance rules, and the “best” route depends on what you want to do with the income and the properties long term.
Key trade-offs to weigh up before you assume incorporation is the fix
- Stamp Duty Land Tax: Transferring property into a company can trigger SDLT, and the rates can be higher for additional dwellings.
- Refinancing: You may need a new mortgage in the company name, with different rates, fees, and lender criteria.
- Legal transfer and costs: Conveyancing, valuations, and lender requirements can make the switch expensive and slow.
- Ongoing admin: Company accounts, Corporation Tax filings, payroll (if used), and more structured bookkeeping.
- Profit extraction: Taking money out as dividends or salary changes the personal tax picture, so the “saving” is not just about interest relief.
- Future plans: How you intend to grow the portfolio, hold long term, or sell can change the numbers.
Bottom line: Do not assume incorporation is a quick win. It can help in the right situation, but it can also create upfront tax and financing costs that outweigh the benefit.
Practical ways to reduce the Section 24 impact without fluff
Section 24 can squeeze returns, but you are not stuck with one outcome. The best approach is usually a mix of borrowing decisions, ownership planning, and tighter profit control.
1. Review borrowing and refinance with purpose
Look past the headline rate. Check product fees, renewal terms, interest-only vs repayment impact on cash flow, and whether a refinance actually improves the after-tax position once costs are included. A cheaper rate can help, but only if fees and exit costs do not wipe out the gain.
2. Consider ownership planning where it fits
For some landlords, how ownership is split between spouses or civil partners can change how much income sits in higher tax bands. This is not a quick DIY tweak, because the legal ownership and beneficial ownership need to match what is reported, and it has to be done properly and compliantly.
3. Improve the true profitability, not just the tax position
Section 24 bites hardest when interest takes up a big chunk of rent. Focus on what moves the net margin: price voids into your forecast, tighten tenant processes to reduce gaps, review agent fees, and plan repairs early so you avoid expensive last-minute work. If rent increases are realistic for your local market, build them into renewals carefully and fairly.
4. Claim every allowable non-finance expense correctly
Because finance costs no longer reduce taxable profit, getting the rest of your allowable expenses right matters more. Repairs and maintenance, insurance, letting agent fees, safety checks, and other genuine running costs can still reduce taxable profit when they are wholly and exclusively for the rental business.
5. Separate repairs vs improvements
This is a common risk area. Repairs usually maintain the property and may be allowable against rental income, while improvements are often treated differently for tax. If you mix the two, you can under-claim (or over-claim and face problems later). Keep invoices clear and split work lines where needed.
If Section 24 is distorting your taxable profit, eAccounts can run scenario comparisons (personal vs company, ownership splits, refinance costs) so you can choose with confidence.
Want to make sure you claim everything you can? This 2026 guide covers landlord tax-deductible expenses, so you can reduce taxable rental profit and avoid missed deductions.
Wrapping up
Section 24 changed mortgage interest tax relief for landlords, so your buy-to-let mortgage tax deductions no longer work as a simple expense claim. Instead, you need to model the 20% tax reduction properly, watch where the limits apply, and pay close attention to tax band thresholds, especially if you sit near the higher-rate line.
The real win is not chasing a perfect loophole. It is building predictable after-tax profit you can rely on, with numbers that make sense both on paper and in your bank account. When you understand the gap between your cash view and your tax view, it becomes much easier to make confident choices on borrowing, ownership, and long-term portfolio growth.
Because every landlord’s position differs, portfolio size, tax band, spouse or partner income, and refinance costs can all change the outcome. If you are unsure, get your figures reviewed before you act so you can choose the most sensible path for your situation.
FAQs
1. Can landlords still claim mortgage interest as an expense in the UK?
Not in the same way for personally owned residential buy-to-let. Mortgage interest usually does not reduce your rental profit for tax. Instead, you may get a 20% tax reduction, and it can be capped depending on your income and property profits.
2. Who does Section 24 apply to?
It applies to individual landlords and certain partnerships with residential property income. It does not apply in the same way to limited companies, which are generally taxed under corporation tax rules.
3. What counts as finance costs for Section 24?
Finance costs usually include mortgage interest and some borrowing-related fees linked to arranging or renewing a loan. Capital repayments do not qualify.
4. Why did my tax bill go up if my rental profit did not?
Because Section 24 can increase your taxable rental profit by removing interest as a deduction in the profit calculation. That higher taxable figure can also push you into a higher tax band, even if your cash profit stays similar.
Is moving property into a limited company the best way around Section 24?
Sometimes, but it is not automatic. Transfer costs, refinancing, legal work, ongoing admin, and how you plan to extract profits can change the outcome. It is worth modelling the numbers before you decide.
