Section 24 Mortgage Interest Relief: What It Is and How It’s Calculated
Section 24 restricts landlords' mortgage interest relief to a 20% basic-rate tax credit. Here's how it works, and the options to reduce its impact
The tax bill of any residential landlord with a mortgage is affected by Section 24, a provision introduced under the Finance (No. 2) Act 2015. Individual landlords can no longer deduct mortgage interest as a business expense, instead, they receive a 20% basic-rate tax credit. For higher and additional-rate taxpayers, this means rental income is taxed before finance costs are accounted for, often pushing the effective tax rate well above 40%.
This guide explains how the section 24 mortgage interest relief is calculated, who it applies to, who is exempt, and the legitimate ways landlords are reducing its impact.
Key Takeaways
- Section 24 restricts mortgage interest relief for individual residential landlords to a basic-rate (20%) tax reduction, regardless of their actual tax rate, creating a significant annual cost for higher-rate and additional-rate taxpayers
- Companies, including property SPVs, are outside Section 24 and deduct mortgage interest in full when calculating profits, which are then charged to Corporation Tax at 19% to 25% depending on profit level
- A higher-rate taxpayer with £100,000 of annual mortgage interest receives relief worth £20,000 instead of £40,000, an extra £20,000 of tax a year; a company deducts the full £100,000
- The furnished holiday let regime, which was outside Section 24, was abolished from 6 April 2025, so former FHLs are now treated like other residential lets
- From 6 April 2027, property income will be taxed at 22%, 42% and 47%, and the Section 24 tax reduction will increase to 22%
- Moving existing property into an SPV is not a simple decision: it can trigger Capital Gains Tax and Stamp Duty Land Tax, plus refinancing and legal costs, and profits extracted from the company are taxed again as dividends, so the numbers must be modelled for your own portfolio
What Is Section 24 & Why It Changed Everything
Section 24 tax is not a new tax and isn’t a separate amount added to your tax return; it is a limitation on the amount of mortgage interest that an individual landlord can deduct when calculating their taxable rental profit.
Before 6 April 2017 landlords were allowed to deduct mortgage interest at their full marginal rate. For a taxpayer paying at the higher rate (40%) with £30,000 of mortgage interest the amount by which their taxable rental income was reduced was the full £30,000.
That change was introduced by Section 24 of the Finance (No. 2) Act 2015: instead of being allowed to deduct interest as an expense, individual landlords are now entitled to a basic-rate (20%) tax reduction. In practice:
The amount of mortgage interest is included when calculating the taxable rental profit.
The landlord receives a tax credit equal to 20 per cent of the interest. The impact is roughly neutral for a taxpayer on the basic rate but represents a real and continuing expense for those on the higher rate and additional rate.
The rules are set out in section 272A of ITTOIA 2005 (the restriction) and in section 274A of ITTOIA 2005 (the basic-rate tax reducer). The restriction was introduced in a step-by-step manner: in the 2017/18 tax year the relief was reduced to 75% of the old basis, in 2018/19 it was reduced to 50% and in 2019/20 to 25%, after which, from 2020/21 onwards, mortgage interest is completely disallowed as a deduction and is instead replaced by the 20% credit.
Who Section 24 tax affects (and how it pushes you into a higher band)
Section 24 tax applies to individual landlords who rent out residential property with a mortgage or other type of loan. It hits higher- and additional-rate taxpayers the most. There is also another effect: since mortgage interest is added back to your taxable rental profit, your reported income ends up higher than your actual profit.
This higher reported income can:
move a basic-rate taxpayer into the higher-rate tax band;
reduce or remove your Personal Allowance, which starts to decrease once your income goes over £100,000;
affect the High Income Child Benefit Charge and other thresholds linked to your income.
If your portfolio has a lot of borrowing, you might show a taxable “profit” even if you make little or no real cash profit. This is why Section 24 tax is often called the “landlord tax trap”.
Section 24 tax does not apply to commercial property loans or to companies (see below).
Who Is Exempt from Section 24 Tax & Why It Matters
Corporate landlords, such as property SPVs, are outside the Section 24 restriction. If the rented property is owned by a company rather than in your personal name, the company deducts 100% of its mortgage interest when calculating its profits, because company profits are charged to Corporation Tax rather than Income Tax. Corporation Tax is then charged at 19% on profits up to £50,000, 25% on profits above £250,000, with marginal relief in between (these limits are reduced if the company has associated companies).
Furnished Holiday Lets (Exemption Abolished)
The Furnished Holiday Let (FHL) regime, which previously took these properties outside Section 24, was abolished from 6 April 2025. Former FHL owners can no longer deduct mortgage interest in full and instead receive the same 20% basic-rate tax reduction as any other residential landlord; there is no longer a distinction between an FHL and a standard buy-to-let for this purpose.
Let’s look at how Section 24 affects a typical UK landlord with higher-rate tax status.
Understanding the Financial Impact Through a Real-World Scenario
The Scenario
Sarah pays tax at the higher rate on all of her rental profit and owns four properties in London. Each one has a £150,000 mortgage at 5% interest, so her total annual mortgage interest is £30,000. After covering running costs but before paying mortgage interest, her rental profit is £48,000 a year. If she owns the properties personally, Section 24 means she cannot deduct the interest, so she is taxed on the full £48,000 at 40% (£19,200). She does get a 20% basic-rate tax reduction on the interest (£6,000), which brings her tax bill to £13,200. After paying the mortgage interest, she is left with £4,800 in cash. If the properties are owned by an SPV with no associated companies, the company deducts the £30,000 interest, so only £18,000 is taxable. Because this is below £50,000, the 19% small profits rate applies, giving Corporation Tax of £3,420 and leaving £14,580 in the company after tax and interest. That is £9,780 a year more than personal ownership, before any tax on taking the money out of the company.
Section 24 Calculation
Personal Ownership (Section 24 applies)
| Step | Calculation | Amount |
|---|---|---|
| Taxable rental profit | Interest is not deductible — full £48,000 is taxable | £48,000 |
| Income tax at 40% | £48,000 × 40% | £19,200 |
| Less: basic-rate tax reducer | £30,000 × 20% | −£6,000 |
| Tax due | £13,200 | |
| Cash left after tax and interest paid | £48,000 − £13,200 − £30,000 | £4,800 |
SPV Ownership (Section 24 does not apply)
| Step | Calculation | Amount |
|---|---|---|
| Taxable profit | £48,000 − £30,000 interest (fully deductible) | £18,000 |
| Corporation Tax at 19% (small profits rate, profits under £50,000) | £18,000 × 19% | £3,420 |
| Cash left in the company after tax and interest paid | £48,000 − £30,000 − £3,420 | £14,580 |
Comparison: the SPV retains £9,780 more per year than personal ownership (£14,580 vs £4,800). This money is still inside the company: if Sarah draws it out as a dividend, dividend tax applies (35.75% for a higher-rate taxpayer in 2026/27), so the extraction cost must be modelled before comparing the two routes. From 2027/28, the personal figures will also change, as property income moves to 22%/42%/47% and the tax reduction rises to 22%.
How to reduce the impact of Section 24 tax
There is no way for an individual landlord to opt out of Section 24 tax, but there are legitimate ways to reduce its effect.
Claim every other allowable cost.
Section 24 only restricts finance costs. Letting agent fees, repairs and maintenance, insurance, ground rents, and other genuinely allowable expenses remain fully deductible and reduce the profit that Section 24 tax is applied to. Making sure these are captured is the simplest first step.
Hold property through a company (SPV)
Because companies are outside the restriction, buying or holding property through an SPV means mortgage interest is deducted in full before Corporation Tax. For higher-geared, higher-rate landlords this can materially reduce the tax cost of Section 24.
The full mechanics are covered in our guide to buying property through an SPV, and SPV mortgages work differently from personal buy-to-let mortgages.
An SPV is not automatically cheaper, and moving existing property into one is a significant decision:
Capital Gains Tax
transferring a personally owned property to a company is normally treated as a disposal at market value, which can trigger a CGT charge. Incorporation relief may be available in some circumstances but is not automatic.
Stamp Duty Land Tax
the company's purchase from you can be within the charge to SDLT (including the higher rates for additional dwellings).
Mortgage terms
corporate mortgages often carry a rate premium and stricter criteria.
Ongoing compliance
a company needs annual accounts, a Corporation Tax return, and potentially MTD reporting, adding to running costs.
Because incorporation involves CGT and SDLT, it should never be undertaken without a property-specialist calculation. Our sister firm, UK Property Accountants, can model whether an SPV is worthwhile for your specific portfolio before you commit.
Conclusion
Section 24 has fundamentally changed the economics of residential property investment. For higher-rate and additional-rate taxpayers with significant borrowing, it can cost thousands of pounds a year in lost relief, and the cost will rise further when property income rates increase in April 2027.
Holding property through an SPV takes it outside Section 24, so mortgage interest is deducted in full before Corporation Tax. However, the overall saving depends on how much profit you need to draw out of the company, since dividends are taxed again at 10.75%, 35.75% or 39.35% for 2026/27. The SPV route tends to work best where profits can be retained and reinvested in the company.
The decision to move to an SPV is not automatic. Any upfront costs, including Capital Gains Tax, Stamp Duty Land Tax, legal fees and refinancing costs, need to be weighed against the long-term annual savings, and the payback period varies widely from one portfolio to another. Get a property-specialist calculation for your own circumstances before you restructure.
