A guide to ‘Section 24’: mortgage interest relief for UK landlords

The provision commonly known as Section 24 (from the Finance Act which introduced it) applies to individual landlords across the UK, whether they live in England, Wales, Northern Ireland or Scotland. It stops them deducting mortgage interest from residential rental profits and gives a tax reducer at the basic rate (currently 20%), which means a higher or additional rate taxpayer with a heavily mortgaged portfolio can face an Income Tax bill larger than it would be based on the portfolio’s real profit.

The restriction has applied in full since 2020/21, but higher interest rates, the end of the furnished holiday lettings (FHL) regime and new property Income Tax rates from April 2027 mean the numbers now potentially look different.

This guide answers the questions landlords raise with us most often: how the Section 24 tax reducer is calculated, how much it costs at different levels of borrowing, which thresholds it can push you over, and what changes in 2027/28 in each part of the UK.

Section 24 at a glance

Relief for residential finance costs is a 20% reduction in the tax bill, not a deduction from rental profit.
The rate of relief is the same in every part of the UK.
The more a landlord borrows, the higher the effective tax rate, and a highly geared portfolio can owe tax while making a loss.
Taxable income ignores a deduction for the interest, so thresholds such as the £100,000 personal allowance taper are crossed sooner.
From 6 April 2027 relief rises to 22%, alongside higher property Income Tax rates in England and Northern Ireland, while Wales and Scotland can set their own.

What does Section 24 do and who does it apply to?

Section 24 of the Finance (No. 2) Act 2015 restricts relief for finance costs on residential property to the basic rate of Income Tax, and it was uniformly phased in from 6 April 2017 until the restriction reached 100% in 2020/2021. Landlords now pay tax on rental profits before interest and receive a reduction in their tax bill equal to 20% of their finance costs.

What counts as a finance cost?

Finance costs are wider than mortgage interest. They include interest on loans to buy furnishings and the fees for taking out or repaying a mortgage, such as arrangement fees and early repayment charges, while capital repayments receive no relief at all.

Who is caught by the restriction?

The restriction applies to UK taxpayers wherever in the world the landlord lives, and covers:

Individual landlords letting UK (if they are UK tax resident) or overseas residential property.
Partnerships that own residential property.
Trustees.
Former furnished holiday lets from 6 April 2025, following the abolition of the FHL regime.

What is outside of Section 24?

The restriction does not apply to companies, commercial property, loans for a property development trade, or loans secured on a let dwelling where the money is used in a separate trade. This last exclusion matters to landlords who also run a business, because borrowing against the portfolio to fund the trade keeps full interest relief.

How is the tax reducer calculated?

The reducer is the basic rate multiplied by the lowest of three figures: the finance costs for the year plus any unrelieved costs brought forward, the property profits after brought-forward losses, and the landlord’s total income (excluding savings and dividend income) above the personal allowance.

The basic rate used is the UK rate of 20%, including for Scottish taxpayers. Scotland sets its own income tax bands, so a Scottish landlord can receive relief at a different rate from the tax paid on the same slice of income, whereas landlords in England, Wales and Northern Ireland pay 20% at the basic rate and receive 20% relief.

Finance costs that cannot be relieved because of this cap carry forward to later years, so a year of low profits delays relief rather than losing it. The cap also stops brought-forward losses producing double relief, because the losses reduce the profit used in the reducer calculation as well as the taxable profit itself.

How much does Section 24 cost a higher rate landlord?

Examples

On the same portfolio, borrowing decides the effective tax rate: taking the illustrations below, a higher rate landlord in England pays over 55% of real profit in tax at 42% loan to value (LTV), and more than nine times the real profit at 75% LTV.

Data used in the examples

Six residential properties worth £3m
£150,000 of rental income pa
£35,000 of repairs and professional fees pa
Profit before interest £115,000

For simplicity, all rental profits are taxed at the landlord’s marginal rate for 2025/26, on the basis that other income already uses the lower bands. Landlords in England, Wales and Northern Ireland pay 40% at the higher rate and 45% at the additional rate, while Scottish landlords pay 42% at the higher rate and 48% at the top rate.

Example 1: 42% loan to value

The landlord has a £1.25m mortgage costing £50,000 a year in interest, so real profit after interest is £65,000 and the tax reducer is £10,000.

Taxpayer	Tax on £115,000 profit	Income tax payable after reducer	Profit after tax	Effective tax rate on real profit
England, Wales or NI, higher rate (40%)	£46,000	£36,000	£29,000	55.4%
England, Wales or NI, additional rate (45%)	£51,750	£41,750	£23,250	64.2%
Scotland, higher rate (42%)	£48,300	£38,300	£26,700	58.9%
Scotland, top rate (48%)	£55,200	£45,200	£19,800	69.5%

The landlord keeps a profit but loses more than half of it, because interest that would have saved tax at 40% to 48% is only relieved at 20%.

Example 2: 75% loan to value

The same portfolio carries a £2.25m mortgage costing £112,500 a year, so real profit after interest is £2,500 and the tax reducer is £22,500.

Taxpayer	Tax on £115,000 profit	Income tax payable after reducer	Loss after tax	Effective tax rate on real profit
England, Wales or NI, higher rate (40%)	£46,000	£23,500	(£21,000)	940%
England, Wales or NI, additional rate (45%)	£51,750	£29,250	(£26,750)	1,170%
Scotland, higher rate (42%)	£48,300	£25,800	(£23,300)	1,032%
Scotland, top rate (48%)	£55,200	£32,700	(£30,200)	1,308%

The portfolio roughly breaks even in cash terms and still produces a five-figure tax bill, which has to be paid from other income or savings.

Why rate rises cost more than they appear to

Taking the same £2.25m mortgage, each one percentage point rise in interest rates adds £22,500 of interest a year but only £4,500 of tax relief, so the landlord’s cash position worsens by £22,500 while the tax bill falls by only £4,500 – regardless of their marginal rate.

How does Section 24 affect former furnished holiday lets (FHLs)?

From 6 April 2025 a FHL is taxed as an ordinary residential let, so interest is now restricted to a 20% tax reducer rather than a full deduction from profits, even if the owner runs the property business exactly as before.

The FHL regime treated holiday letting much like a trade, which allowed a full deduction for interest, losses to be set against other income, capital allowances and Capital Gains Tax reliefs such as Business Asset Disposal Relief. For most owners, the loss of full interest relief is the most immediate and most noticeable change.

Example: a holiday cottage with a mortgage

Data used

Scottish taxpayer
Earning a £60,000 salary
Lets a holiday cottage for £30,000 a year
£8,000 of running costs and £12,000 of mortgage interest

The figures below use the 2025/26 Scottish bands in both columns, so the only change is the loss of FHL status.

	Under the FHL rules	Under the 2025/26 rules
Property business profit	£10,000	£22,000
Total income	£70,000	£82,000
Income tax before reducer	£17,414	£22,664
Tax reducer (20% of £12,000)	None	(£2,400)
Tax payable	£17,414	£20,264

The owner’s cash profit is identical, but the tax bill rises by £2,850 because the extra £12,000 of taxable income is taxed at 42% and 45% and relieved at 20%. A landlord in England with the same figures would pay £2,400, as the extra income is taxed at 40% (£4,800) less the £2,400 reducer.

2025/26 is the first year on the new basis, so the balancing payment due on 31 January 2027 will be higher, and payments on account for 2026/27 will rise accordingly.

Why can your taxable income be higher than your real income?

Because interest is not deducted, taxable income includes money that goes straight to the lender, and it is that higher figure which decides the thresholds a landlord crosses. In both worked examples, taxable property profit is £115,000, even where real profit is £2,500.

The thresholds most often affected, in every part of the UK, are:

The personal allowance, which is withdrawn by £1 for every £2 of adjusted net income above £100,000.
The High Income Child Benefit Charge, which claws back 1% of Child Benefit for every £200 of adjusted net income above £60,000, rising to the full amount at £80,000.
The higher and additional rate bands in England, Wales and Northern Ireland, and the higher, advanced and top rate bands in Scotland.

The tax reducer comes off the final tax bill, after these tests have been applied, so it does nothing to bring adjusted net income back below a threshold. A landlord whose real income sits comfortably below £100,000 can still lose part or all of their personal allowance.

What changes from April 2027?

From 6 April 2027 the tax reducer will be calculated at the new property basic rate of 22% rather than 20%, and that applies in every part of the UK. What happens to the tax rates on rental profit depends on where the landlord lives.

England, Wales and Northern Ireland

Property income will be taxed at 22%, 42% and 47%, two percentage points above the rates on other sources of income.

The higher reducer offsets some of the increase, and the more a landlord borrows, the more it offsets. On the worked examples, a higher rate landlord’s tax rises by £1,300 at 42% LTV (to £37,300) but by only £50 at 75% LTV (to £23,550), because the extra 2% of relief on £112,500 of interest almost cancels out the extra 2% of tax on £115,000 of profit.

Scotland

Scotland can also set its own property income tax rates, but the finance cost rules sit in legislation that applies across the UK, so Scottish landlords will receive relief at 22% regardless of the rates Scotland sets.

If Scottish rates on property income stay where they are, Scottish landlords gain slightly. In the 75% LTV example the reducer rises from £22,500 to £24,750, and a taxpayer paying the 21% intermediate rate, who currently receives relief at 20%, will receive relief at 22%.

How should you split interest on a mixed portfolio?

Only interest on borrowing used for residential lettings is restricted, so landlords who also own commercial property must split their finance costs on a just and reasonable basis, looking at what the borrowed money was used for.

HMRC’s examples use different bases for different facts, with the underlying requirement that allocations are on a reasonable basis. A building with offices and flats can be split by floor area, a loan that funds a flat conversion and an office refit can be split by how much of the loan was allocated to each property, and a single facility funding a whole portfolio can be split by the original cost of the residential and commercial properties.

Where one account or facility carries all the borrowing, HMRC will not accept a repayment being treated as relating to a particular type of property. Landlords with a shop and a flat above it, or a portfolio funded through one facility, should agree the basis with their adviser and apply it consistently, bearing in mind that HMRC guidance is its interpretation of the law rather than the law itself and HMRC can question the basis if it looks unreasonable.

Is incorporation the answer to Section 24?

Companies can still deduct finance costs in full, which is why Section 24 is the reason landlords most often give for considering incorporation, but the saving has to be weighed against the cost and complexity of getting there.

Moving a portfolio into a company can trigger Capital Gains Tax and a land tax charge on the transfer: Stamp Duty Land Tax (SDLT) in England and Northern Ireland, Land Transaction Tax (LTT) in Wales, or Land and Buildings Transaction Tax (LBTT) in Scotland. Very large portfolios can also fall within the Corporate Interest Restriction once interest and other finance costs exceed £2m a year, and incorporation is an area HMRC is watching closely.

What should landlords do now?

Re-forecast your tax for 2025/26, 2026/27 and 2027/28, particularly if you own a furnished holiday let or live in England, Wales or Northern Ireland, where property income rates rise from April 2027.
Check where your adjusted net income sits against the High Income Child Benefit Charge £60,000 and £80,000 thresholds, for both you and your spouse or partner, and also the £100,000 threshold above which the personal allowance reduced.
Review your borrowing with your broker or lender, since each rate rise affects a higher or additional rate landlord far more in interest than the tax reducer gives back.
Review how the portfolio is owned, between spouses or civil partners or through a company, only after modelling the CGT and SDLT, LTT or LBTT costs of any transfer, including land tax on any mortgage debt the new owner takes on.

How can Price Bailey help landlords?

The Price Bailey Tax team model Section 24 exposure for landlords across the UK, review borrowing and ownership structures, and advise on whether incorporation makes sense for a particular portfolio. Contact us using the form below…

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.

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