Section 24 Explained: The Landlord Mortgage Interest Rule

Section 24 is the tax change that quietly reshaped buy-to-let — and a lot of landlords still don’t realise how much it’s costing them. Here’s exactly what it is, who it hurts, and what you can do about it.

What is Section 24?

Section 24 is the rule, fully in force since April 2020, that stops individual landlords deducting mortgage interest as an ordinary business expense. Before it, you’d simply take your interest off your rental income. Now you can’t.

Instead, the mechanism is:

1. Work out your profit including the full rent and without deducting mortgage interest
2. Calculate the Income Tax on that (higher) profit
3. Subtract a tax credit worth 20% of your mortgage interest

For a basic-rate taxpayer, the 20% credit roughly matches the old relief — so little changes. But for higher and additional-rate taxpayers, the credit is worth far less than the deduction used to be, so they pay more tax.

Why it hits harder than people expect

There are two nasty effects:

• Higher-rate landlords pay more — the 20% credit doesn’t make up for losing a 40% or 45% deduction.
• Some basic-rate landlords get dragged into higher rate — because the full rent now counts towards your income (before interest is netted off), it can push your total income over the higher-rate threshold, taxing other income more too.

In the worst cases, a heavily-mortgaged higher-rate landlord can pay tax that exceeds their actual profit. Our rental income tax calculator shows the effect on your numbers.

A simple example

Imagine £20,000 rent, £12,000 mortgage interest, and you’re a higher-rate (40%) taxpayer:

• Old way: taxed on £8,000 profit → £3,200 tax
• Section 24 way: taxed on £20,000 → £8,000, minus a 20% credit on the £12,000 interest (£2,400) → £5,600 tax

Same property, same cash flow — but £2,400 more tax. That’s Section 24.

How to reduce the impact

There’s no magic fix, but landlords use several strategies:

• Hold property through a limited company, where mortgage interest is fully deductible against Corporation Tax — see buy-to-let limited company
• Transfer property (or a share) to a lower-earning spouse to use their lower tax band
• Reduce gearing — lower borrowing means less disallowed interest
• Review your portfolio — the rule changes the maths on highly-mortgaged properties

Each option has costs and trade-offs (incorporating triggers CGT and stamp duty, for example), so model it properly before moving.

Don’t just absorb it

Many landlords simply pay the extra tax without realising how much Section 24 is costing them, or that there are legitimate ways to soften it. Our accountants for landlords apply the rules correctly, quantify the impact on you, and model whether a company structure or spousal transfer would genuinely help — see the bigger picture in our landlord tax overview.