Section 24 Explained Simply: How Mortgage Interest Tax Relief Works for Landlords

Section 24 is one of the most misunderstood areas of UK landlord tax.

You may have heard that landlords "can't deduct mortgage interest anymore".

That is not quite right.

Mortgage interest can still provide tax relief for many individual residential landlords - but the way that relief works changed significantly.

Instead of deducting qualifying mortgage interest directly from rental income, individual landlords generally receive a basic-rate tax reduction for qualifying residential finance costs.

This can have a significant impact on landlords who have large mortgages, particularly those paying tax at the higher or additional rate.

In this guide, we'll explain Section 24 in plain English, including:

• What Section 24 actually means

• How mortgage interest relief works

• Why your taxable rental profit can be higher than your cash profit

• How the 20% tax reduction is calculated

• What happens to unused finance costs

• Who is affected

• What happens if you own property through a limited company

• How Section 24 can affect portfolio decisions

• Common mistakes landlords make

• What you should consider before remortgaging or incorporating

Important: This article provides general information about UK tax rules and is not personal tax advice. The calculation can vary depending on your income, property business, finance costs and ownership structure.

What is Section 24?

"Section 24" is the commonly used name for the residential property finance cost restriction introduced by Section 24 of the Finance Act 2015.

The rules were introduced gradually from the 2017/18 tax year and became fully effective from 2020/21.

Before the restriction, an individual landlord could generally deduct qualifying mortgage interest from their rental income when calculating their taxable property profit.

For example:

£30,000 rental income

less:

£10,000 mortgage interest

less:

£5,000 other allowable expenses

would produce:

£15,000 taxable rental profit.

That changed.

For individual landlords, qualifying finance costs relating to residential property are now generally not deducted from rental income.

Instead, the landlord receives a tax reduction based broadly on 20% of qualifying finance costs, subject to the statutory calculation.

HMRC confirms that the restriction has applied fully since 2020/21.

Why was Section 24 introduced?

The policy behind Section 24 was to restrict the tax advantage available to individual landlords who finance residential property with borrowing.

The previous system effectively meant that a higher-rate taxpayer could receive tax relief on qualifying mortgage interest at their marginal tax rate.

For someone paying Income Tax at 40%, £10,000 of qualifying mortgage interest could potentially have reduced taxable income by £10,000, producing up to £4,000 of tax relief.

Under the current rules, the basic-rate tax reduction is generally calculated at 20%.

So:

£10,000 qualifying finance costs × 20% = £2,000 tax reduction

This difference can be particularly important for highly leveraged landlords.

The simplest example of Section 24

Let's look at a straightforward example.

Imagine you own one rental property personally.

Your annual figures are:

Your bank account might look roughly like this:

£30,000 rent

− £5,000 other expenses

− £10,000 interest

− £4,000 capital repayment

= £11,000 cash left

You might therefore think:

"My rental profit is £11,000."

But that is not necessarily the figure used for Income Tax.

The £4,000 capital repayment is not an allowable expense.

And the £10,000 residential mortgage interest is dealt with under the finance-cost restriction.

Your property profit before finance costs is therefore:

£30,000 − £5,000 = £25,000

That £25,000 is relevant to your taxable property income calculation.

The £10,000 qualifying finance cost is then considered when calculating the tax reduction.

Subject to the relevant restrictions, the maximum basic-rate tax reduction could be:

£10,000 × 20% = £2,000

This is why a landlord can have relatively modest cash flow but still have a surprisingly large tax bill.

"But I only made £11,000!"

This is probably the biggest source of confusion.

Landlords often calculate profit based on what is left in their bank account.

Tax law doesn't necessarily work that way.

There are three different concepts to keep separate:

Rental income

The money received from tenants.

Taxable property profit

The amount calculated under the property income tax rules.

Cash profit

The actual amount left after paying expenses, mortgage interest and capital repayments.

These figures can be very different.

For example:

£30,000 rent

− £5,000 allowable expenses

− £10,000 mortgage interest

− £4,000 mortgage capital repayment

= £11,000 cash remaining

But the property profit before finance costs is:

£25,000

That's why looking only at your bank balance can give you the wrong impression about your tax position.

How is the Section 24 tax reduction calculated?

The calculation is more complicated than simply multiplying your mortgage interest by 20%.

HMRC explains that the tax reduction is broadly based on the lowest of:

1. Your qualifying finance costs;

2. Your property business profits after relevant adjustments and losses;

3. The amount of your adjusted total income that exceeds your Personal Allowance.

The relevant finance costs can also include certain finance costs brought forward from earlier years.

HMRC's guidance confirms that unused finance costs can be carried forward where the statutory conditions are met.

This means you cannot necessarily assume:

"I paid £20,000 mortgage interest, so I'll automatically get £4,000 off my tax bill."

The actual calculation may produce a lower amount.

What happens if my finance costs are higher than my rental profit?

This is an important scenario.

Imagine:

• Rental income: £20,000

• Other allowable expenses: £7,000

• Mortgage interest: £15,000

Your property profit before finance costs is:

£20,000 − £7,000 = £13,000

But your qualifying finance costs are:

£15,000

You therefore have more finance costs than property profit.

The Section 24 calculation can restrict the amount of finance costs that generate the tax reduction in the current year.

The unused amount can generally be carried forward for potential relief in future years, subject to the rules. HMRC provides examples of this treatment in its guidance.

This is particularly relevant to landlords experiencing:

• high mortgage rates;

• temporary vacancies;

• major repair bills;

• low rental yields;

• heavily leveraged portfolios.

Can unused mortgage interest be lost?

Not necessarily.

Where qualifying finance costs cannot be used to generate the tax reduction in the current year because of the statutory limits, the unused amount can generally be carried forward.

For example, suppose you have:

£15,000 current-year finance costs

but only:

£10,000 can be used in the calculation for the year.

The remaining:

£5,000

may be carried forward for potential use in a later tax year.

This does not mean you receive a £5,000 tax deduction.

Instead, the carried-forward amount may contribute to a future basic-rate tax reduction.

The rules are therefore about a tax reduction, rather than simply accumulating a pot of deductible mortgage interest.

Does Section 24 mean higher-rate landlords get no mortgage interest relief?

No.

This is another common misconception.

A higher-rate taxpayer can still receive relief for qualifying finance costs.

The important difference is that the relief is generally calculated at the basic rate, rather than at their marginal higher rate.

For example:

£10,000 qualifying mortgage interest

could potentially produce:

£10,000 × 20% = £2,000 tax reduction

rather than:

£10,000 × 40% = £4,000

for a higher-rate taxpayer.

This is one of the key reasons Section 24 can have a greater impact on landlords paying Income Tax at 40% or 45%.

What about additional-rate taxpayers?

The principle is the same.

The Section 24 tax reduction is generally based on the basic rate rather than the landlord's marginal Income Tax rate.

Therefore, a landlord paying tax at 45% does not generally obtain 45% tax relief on qualifying residential mortgage interest.

This can make highly leveraged personally owned property considerably less tax-efficient than it may have appeared under the old system.

However, tax is only one part of the investment decision.

A landlord should also consider:

• interest rates;

• rental yield;

• capital growth;

• financing availability;

• transaction costs;

• liquidity;

• risk;

• future acquisitions;

• and eventual exit strategy.

Does Section 24 apply to all landlords?

No.

The rules depend on the type of property, ownership structure and nature of the borrowing.

The restriction principally concerns individual landlords and residential property finance costs.

There are different rules for:

• companies;

• partnerships;

• commercial property;

• mixed-use property;

• certain types of trusts;

• loans used for different purposes.

HMRC states that the restriction applies to loans and alternative finance arrangements used for residential property businesses, with the precise treatment depending on the circumstances.

This is why you should not assume that another landlord's tax treatment will automatically apply to you.

Does Section 24 apply to limited companies?

The Section 24 restriction is an individual landlord rule.

A limited company does not calculate its property profits under the individual Income Tax finance-cost restriction.

Instead, companies generally deal with borrowing and interest under the Corporation Tax and corporate finance rules.

This can make company ownership particularly attractive for landlords intending to:

• build a portfolio;

• retain profits within the company;

• reinvest rental profits;

• use borrowing to acquire additional properties.

But this does not mean:

"Put everything into a company and you'll pay less tax."

A company introduces another layer of considerations.

Corporation Tax may be payable on company profits, and extracting money from the company personally can create further tax consequences.

There are also:

• incorporation costs;

• SDLT considerations;

• mortgage costs;

• accounting and compliance costs;

• dividend taxation;

• extraction planning;

• CGT considerations;

• inheritance planning.

The correct question is therefore not:

"Is a limited company better?"

It is:

"Which structure produces the best overall outcome for my investment strategy?"

Section 24 and buying another property

This is where Section 24 becomes particularly important for portfolio landlords.

Imagine you already own three personally held properties.

You are considering buying a fourth.

You have two broad options:

Option A - Buy personally

or

Option B - Buy through a limited company

The decision should not be based purely on the tax rate.

You should model:

Personal ownership

• rental income;

• allowable expenses;

• mortgage interest;

• Section 24 tax reduction;

• Income Tax;

• personal cash flow;

• CGT on eventual sale.

Company ownership

• rental income;

• allowable expenses;

• finance costs;

• Corporation Tax;

• retained profits;

• dividend/extraction tax;

• company mortgage costs;

• CGT on eventual disposal;

• administration.

The difference can become significant over many years.

Should I remortgage because of Section 24?

Not necessarily.

Section 24 should be one consideration in a remortgage decision, not the sole reason for changing your mortgage.

Before remortgaging, consider:

• new interest rate;

• arrangement fees;

• early repayment charges;

• loan-to-value;

• additional borrowing;

• purpose of the borrowing;

• rental yield;

• tax consequences;

• expected investment return;

• future property purchases.

If you release equity from one property to fund another investment, the tax treatment of the borrowing needs to be considered carefully.

HMRC's guidance emphasises that the purpose and use of borrowing can affect how finance costs are treated, particularly where a property business contains both residential and other property.

Borrowing more simply because the interest is "tax deductible" is rarely a good tax strategy.

The investment itself needs to make commercial sense.

Section 24 and property losses

Property losses are another area where landlords need to be careful.

The rules for property business losses are different from the Section 24 finance-cost tax reduction.

A landlord may have:

• an accounting/cash loss;

• unused finance costs;

• a property business loss;

and these do not all work in the same way.

This is another reason why simply looking at the property's bank account is not enough to understand your tax position.

A proper tax calculation needs to distinguish between the different types of income, expenses, losses and finance costs.

What about commercial property?

The residential finance cost restriction is specifically targeted at residential property.

Commercial property is treated differently.

For example, interest on borrowing used in a commercial property business may generally be treated differently from interest on borrowing used to finance residential property held by an individual.

Mixed-use properties can require an apportionment.

HMRC states that where a property business contains both dwelling houses and other lettings, the finance-cost restriction applies to the borrowing attributable to the residential part.

If you own mixed-use property, don't automatically apply the standard residential Section 24 calculation to the entire loan.

What about furnished holiday lets?

This is an important 2026 update.

Older landlord tax articles often say that Furnished Holiday Lets were treated more favourably for finance costs.

Historically, FHLs benefited from different rules.

However, the special FHL tax regime was abolished for Income Tax and CGT purposes from 6 April 2025, and for Corporation Tax from 1 April 2025.

This means you should be very cautious when relying on older online articles about FHL tax planning. HMRC confirms that the former FHL-specific finance-cost treatment was among the tax advantages removed by the repeal.

If you operate a holiday let, make sure your tax adviser is working from the current rules rather than pre-2025 guidance.

Section 24 and the Personal Allowance

There is another reason the rules can produce unexpected results.

Your rental income can affect your overall taxable income.

If your adjusted net income is high enough, your Personal Allowance may be reduced.

For 2026/27, the standard Personal Allowance is £12,570, and it starts to reduce once adjusted net income exceeds £100,000.

This means property income can interact with your:

• salary;

• pension income;

• dividends;

• savings income;

• other taxable income.

So a landlord's tax calculation should not be performed in isolation from their wider personal tax position.

A worked example: why Section 24 can hurt cash flow

Let's look at a more realistic example.

Imagine a higher-rate taxpayer owns a rental property personally.

Annual figures:

Rent: £36,000

Other allowable expenses: £6,000

Mortgage interest: £16,000

Mortgage capital repayment: £6,000

Cash position

£36,000 rent

− £6,000 expenses

− £16,000 interest

− £6,000 capital repayment

= £8,000 cash remaining

The landlord might reasonably think:

"I only made £8,000."

But the property profit before finance costs is:

£36,000 − £6,000

= £30,000

The £16,000 mortgage interest is then considered under the finance-cost restriction.

At 20%, the potential tax reduction could be:

£16,000 × 20% = £3,200

subject to the relevant statutory limits.

If the landlord's marginal rate is 40%, the tax position can therefore feel very different from the cash position.

And this is before considering their employment income or other sources of income.

This is the fundamental Section 24 problem:

You can have relatively little cash left while still having a relatively large taxable property profit.

So, how can landlords manage the impact of Section 24?

There is no magic Section 24 workaround.

But there are legitimate ways to improve the overall tax and commercial position.

Review the ownership structure

If you're building a portfolio, compare personal ownership with limited company ownership before purchasing.

Review borrowing

Don't assume maximum leverage is automatically optimal.

Consider the relationship between:

Borrowing → Interest → Rental yield → Tax → Cash flow

Claim every legitimate expense

Missing allowable expenses increases your taxable property profit unnecessarily.

Plan purchases carefully

The structure used for your next acquisition can have long-term consequences.

Consider your exit strategy

A structure that works well while accumulating properties may not be the best structure when you eventually sell them.

Review your portfolio regularly

Tax planning should evolve as:

• mortgage rates change;

• property values change;

• rental income changes;

• your personal income changes;

• your portfolio grows.

What Section 24 does NOT mean

Let's clear up some common myths.

❌ "Mortgage interest is completely non-deductible."

Not quite.

Qualifying finance costs can generally generate a basic-rate tax reduction, subject to the rules.

❌ "Section 24 only affects landlords with huge portfolios."

No.

It can affect an individual landlord with a single mortgaged residential property.

❌ "You get 20% of the mortgage payment back."

No.

The calculation concerns qualifying finance costs, not the entire mortgage payment.

Capital repayments are not the same as interest.

❌ "Higher-rate taxpayers get no relief."

No.

The relief is generally available at the basic rate, subject to the statutory limits.

❌ "A limited company automatically solves Section 24."

A company is outside the individual Section 24 restriction, but company ownership creates its own tax considerations.

❌ "I should borrow more because the interest gets tax relief."

Definitely not.

Tax relief reduces the cost of borrowing; it does not make borrowing profitable.

Section 24: the landlord's checklist

If you own residential property personally, ask yourself:

☐ How much rental income do I receive?

☐ What are my genuine allowable expenses?

☐ How much mortgage interest am I paying?

☐ How much of my mortgage payment is capital repayment?

☐ Am I paying Income Tax at 20%, 40% or 45%?

☐ Do I have unused finance costs brought forward?

☐ Is my Personal Allowance affected?

☐ Am I planning to buy another property?

☐ Would personal ownership or company ownership make more sense for future purchases?

☐ Am I considering remortgaging?

☐ Am I extracting equity?

☐ What is my eventual exit strategy?

If you cannot answer these questions, it may be time for a proper landlord tax review.

The bigger picture

Section 24 is important.

But it should not become the only thing you think about.

A good property investment decision considers:

Tax + cash flow + borrowing + yield + growth + risk + exit strategy

You could reduce your tax bill and still make a poor investment.

Equally, you could pay more tax while building a highly profitable portfolio.

The objective isn't necessarily to pay the lowest possible tax.

The objective is to achieve the best overall financial outcome while staying fully within the rules.

Final thoughts

Section 24 changed the economics of personally owned residential property for many landlords.

The key lesson is simple:

Your mortgage payment is not the same thing as your tax deduction.

For individual landlords, qualifying residential mortgage interest is generally dealt with through a basic-rate tax reduction rather than being deducted directly from rental income.

That can make a substantial difference to landlords with significant borrowing, particularly where they are higher-rate taxpayers.

But Section 24 should not be considered in isolation.

If you're deciding whether to:

• buy another property;

• remortgage;

• release equity;

• move properties into a company;

• change ownership;

• or sell part of your portfolio;

the tax consequences should be modelled before you make the decision.

At SolutioRemote Accounting, we help landlords look beyond the annual tax return and understand how property income, finance, ownership structure and future plans fit together.

Because the best time to plan your landlord tax position is before you sign the paperwork - not after.

Related landlord guides

You may also find these useful:

The Ultimate Guide to UK Landlord Tax (2026)

A comprehensive overview of Income Tax, allowable expenses, mortgage interest, companies, Capital Gains Tax, Inheritance Tax and exit planning.

Should Landlords Buy Property Personally or Through a Limited Company?
A practical comparison of the two ownership structures.

How to Reduce Tax Legally as a Landlord

A guide to legitimate landlord tax planning and commonly overlooked reliefs.

How Much Tax Will I Pay When I Sell My Rental Property?

Understanding Capital Gains Tax when disposing of an investment property.

Should I Transfer My Rental Property to a Limited Company?

What to consider before incorporating an existing property.