Section 24 Explained: Complete Landlord Guide 2026/27

If you're a landlord with a mortgaged buy-to-let property, "Section 24" is probably a phrase you've heard, often with a degree of frustration attached. Introduced gradually between 2017 and fully in force from April 2020, Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how mortgage interest is treated for tax purposes on residential lets, and it remains one of the most misunderstood, and most consequential, rules landlords face. This guide explains exactly how it works, who it really hits, and what you can do to plan around it.

What Section 24 actually does

Before April 2020, landlords could deduct mortgage interest from their rental income as a normal business expense, just like letting agent fees or maintenance costs, reducing their taxable profit pound for pound. Section 24 removed that ability for individual landlords with residential properties. Instead, mortgage interest is added back into your taxable rental profit (so you're taxed as though you'd never paid it), and you receive a flat-rate tax credit, currently worth 20% of the interest you've paid, deducted directly from your final tax bill.

This sounds like a technicality, but the practical effect can be significant. The key point to understand is this:

Notice that your tax bill is calculated on a larger taxable profit than your real cash profit, because mortgage interest, a real cost you've genuinely paid, isn't deducted before the tax calculation. The credit then gives some of that back, but only at a flat 20% (22% from April 2027), regardless of what rate you actually pay tax at.

Why higher-rate taxpayers are hit hardest

For a basic-rate taxpayer, the 20% credit broadly matches the 20% rate they'd have saved had interest still been deductible, so Section 24 makes relatively little practical difference (though it can still push some basic-rate landlords into the higher-rate band, since their taxable profit is now larger than their real cash profit).

For a higher-rate taxpayer, the picture is very different. Every £1 of mortgage interest would previously have saved 40p in tax if it were deductible. Under Section 24, that same £1 of interest only generates a 20p credit, a 20p shortfall on every pound of interest paid. For landlords with substantial mortgages relative to their rental income, this gap can be the difference between a healthy profit and a tax bill that consumes most, or even all, of their actual cash profit. In genuinely extreme cases, where gearing is high and rental yields are tight, some landlords have found their Section 24 tax bill exceeds their real-world rental profit entirely, effectively meaning they're paying tax on money they never received.

A worked example

Imagine a higher-rate taxpayer with £14,400 of annual rental income, £1,800 of other allowable expenses, and £6,000 of mortgage interest. Their taxable rental profit is £14,400 − £1,800 = £12,600 (mortgage interest is not deducted here). If that profit is taxed entirely at the 40% higher rate, the income tax on it is £5,040. Their Section 24 credit is £6,000 × 20% = £1,200, leaving a net tax bill of £3,840 on the rental income. Their real cash profit, after actually paying the mortgage interest, is £14,400 − £1,800 − £6,000 = £6,600, meaning roughly 58% of their real cash profit goes straight to tax. Compare that to the pre-2020 rules, where the same landlord would have deducted the £6,000 of interest before calculating tax, paying roughly £2,640 (some £1,200 less). You can run your own exact figures, including a side-by-side comparison with the old rules, using our Section 24 Tax Calculator.

What changes from April 2027

Section 24 isn't standing still. From 6 April 2027, the credit rate rises from 20% to 22%, in step with the new basic rate that will apply specifically to property income (see our guide on the April 2027 property tax changes for the full picture). On its own, a higher credit rate sounds like good news, and in isolation, it is a small improvement. But it's outweighed by the new property income tax rates rising to 22%/42%/47%, which widens, not narrows, the gap between the rate landlords pay on their rental profit and the rate at which they get relief on their mortgage interest. For higher-rate taxpayers, the gap stays at 20 percentage points (40% − 20% becomes 42% − 22%), so there's no improvement there, while their overall tax bill on the same profit rises because of the higher headline rate.

Legitimate ways landlords plan around Section 24

There's no way to make Section 24 disappear for an individually-owned, mortgaged residential let, but there are legitimate, well-established ways landlords structure their affairs to reduce its impact:

• Limited company ownership. Section 24 doesn't apply to companies, they continue to deduct mortgage interest as a normal expense and pay corporation tax (19%–25%) on the resulting profit. This is the single biggest structural lever available, though it comes with its own costs and trade-offs (incorporation costs, mortgage availability, extraction tax on dividends). Compare your own numbers with our Ltd Company vs Personal Calculator.
• Reducing gearing. Landlords with lower loan-to-value ratios are mathematically less exposed to Section 24, simply because less of their profit is "inflated" by non-deductible interest. Overpaying a mortgage, or choosing not to remortgage to the maximum available, can reduce the impact over time.
• Pension contributions. Increasing pension contributions extends your basic-rate band, which can keep more of your inflated taxable profit out of the 40%/45% (or 42%/47% from 2027) bands, directly reducing the Section 24 "gap" you experience.
• Joint ownership and income splitting. Spreading rental income between spouses or civil partners (in line with genuine ownership shares) can make use of two sets of allowances and basic-rate bands rather than one.
• Specialist advice. Every landlord's mix of income, gearing, plans and family circumstances is different, a property tax specialist can model your exact position and identify options that a general guide can't.