UK Section 24 Mortgage Interest Restriction Detailed Guide 2026/27
Section 24 for 2026/27: finance costs relieved at 20% of the lowest of costs, property profits and adjusted income. Worked examples for every tax band.
Section 24 of the Finance (No. 2) Act 2015 stopped individual residential landlords deducting mortgage interest and other finance costs from rental profits. Since 2020-21 they get a tax reduction instead: 20% of the lowest of their finance costs, their property profits and their adjusted total income above the Personal Allowance (ITTOIA 2005 s.274AA; HMRC worked examples). Every example below is computed from the 2026/27 rates.
Extra tax per £1 of interest by marginal rate, 2026/27
Where the interest is the lowest of the three amounts, so the full interest gets the reduction:
| Marginal rate | Section 24 reduction | Extra tax per £1 of interest |
|---|---|---|
| Basic 20% | 20% | £0.00 |
| Higher 40% | 20% | £0.20 |
| Additional 45% | 20% | £0.25 |
| Scottish higher 42% | 20% | £0.22 |
| Scottish advanced 45% | 20% | £0.25 |
| Scottish top 48% | 20% | £0.28 |
Worked examples, 2026/27
| Landlord | Tax before 2017 rules | Tax now | Extra tax |
|---|---|---|---|
| £30,000 salary, £6,000 interest | £4,886 | £4,886 | £0 |
| £40,000 salary, £6,000 interest | £6,886 | £7,432 | £546 |
| £60,000 salary, £20,000 interest | £17,832 | £21,832 | £4,000 |
| £200,000 salary, £35,000 interest | £89,253 | £98,003 | £8,750 |
| £95,000 salary, £10,000 interest (PA taper) | £27,432 | £31,432 | £4,000 |
| Scottish taxpayer, £50,000 salary, £8,000 interest | £12,342 | £14,102 | £1,760 |
Rents and other costs for each row are in the questions below. Income Tax only; no savings or dividend income; one property business.
What's restricted vs deductible
| Cost type | Treatment |
|---|---|
| Mortgage and loan interest for residential lettings | Restricted: basic-rate reduction |
| Fees and incidental costs of getting or repaying the loan | Restricted: basic-rate reduction |
| Agent / management fees, insurance, repairs, accountancy | Deductible |
| Replacement domestic items | Deductible (ITTOIA s.311A) |
| Improvements (capital) | Not deductible from rental income; may count for CGT on sale |
Phasing of the restriction
| Tax year | Finance costs deductible from rental income | Finance costs given the basic-rate reduction |
|---|---|---|
| 2016/17 and earlier | 100% | n/a |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 onwards | 0% | 100% |
Source: HMRC; ITTOIA 2005 s.272A.
Frequently asked questions
What exactly is Section 24 and how does the tax reduction work?
Section 24 of the Finance (No. 2) Act 2015 inserted ss.272A and 272B into ITTOIA 2005: from 2020-21 no deduction is allowed for the costs of a dwelling-related loan when working out an individual's residential property profits. Instead, Income Tax is reduced by 20% (the basic rate) of the lowest of three amounts: (1) finance costs not deducted, plus any brought forward; (2) the property business profits; (3) adjusted total income above the Personal Allowance, ignoring savings and dividend income (ITTOIA s.274AA). Any finance costs not used because (2) or (3) was lower are carried forward. The reduction cannot create a refund. Restricted costs include interest on mortgages and on loans to buy furnishings, overdraft interest, alternative finance returns, fees and incidental costs of getting or repaying loans, and discounts, premiums and disguised interest. Companies and (until April 2025) furnished holiday lettings were outside the rule. Repairs, agent fees, insurance and other running costs remain deductible as normal.
How does Section 24 affect a basic-rate landlord?
Usually it makes no difference, because the 20% reduction matches the basic rate. Example: salary £30,000, rent £15,000, mortgage interest £6,000, other costs £2,000. Before 2017 the profit was £7,000 and total income £37,000, giving tax of £4,886. Now the profit is £13,000 (interest not deducted), total income £43,000 and tax before the reduction £6,086. The reduction is 20% of £6,000 = £1,200, leaving £4,886: the same as before. The trap is near the higher-rate threshold of £50,270. With a £40,000 salary and the same property, total income becomes £53,000 instead of £47,000, £2,730 is taxed at 40%, and the bill rises by £546.
How much more tax does a higher-rate landlord pay under Section 24?
Example: salary £60,000, rents £42,000, interest £20,000, other costs £6,000. Before 2017: profit £16,000, total income £76,000, tax £17,832. Now: profit £36,000, total income £96,000, tax before the reduction £25,832, reduction 20% × £20,000 = £4,000, tax £21,832. Extra tax: £4,000, which is the 20-point gap between the 40% rate and the 20% reduction on £20,000 of interest. Because interest is no longer deducted, the higher reported income also counts towards the £100,000 Personal Allowance taper and the High Income Child Benefit Charge (see the next question).
How does Section 24 hit an additional-rate landlord?
Example: salary £200,000, rents £75,000, interest £35,000, other costs £11,000. Before 2017: total income £229,000, tax £89,253. Now: total income £264,000, tax before the reduction £105,003, reduction £7,000, tax £98,003. Extra tax: £8,750 (25 points on £35,000). Personal Allowance taper: a landlord on £95,000 salary with rents of £20,000, interest of £10,000 and other costs of £5,000 used to report £100,000; now £110,000, which takes £5,000 off the Personal Allowance. Tax rises by £4,000. Child Benefit: with a £55,000 salary, £15,000 of property profit before £10,000 interest and two children (Child Benefit £2,337 a year at 2026/27 rates), adjusted net income rises from £60,000 to £70,000. The charge (1% per £200 above £60,000, all of it at £80,000) goes from £0 to £1,168. Marriage Allowance: the partner receiving it must be a basic-rate taxpayer (in Scotland, starter, basic or intermediate), so extra reported income that takes the recipient into the higher rate ends the claim.
Why does Section 24 cost Scottish landlords more?
Scottish taxpayers pay Scottish rates on non-savings income, but the finance-cost reduction is still at the 20% basic rate. Scottish 2026/27 rates: Starter rate 19%: £12,571 - £16,537. Scottish basic rate 20%: £16,538 - £29,526. Intermediate rate 21%: £29,527 - £43,662. Higher rate 42%: £43,663 - £75,000. Advanced rate 45%: £75,001 - £125,140. Top rate 48%: Over £125,140. The gap per £1 of interest is 22 points at the higher rate, 25 at the advanced rate and 28 at the top rate. Example: salary £50,000, rent £18,000, interest £8,000, other costs £2,000. A Scottish taxpayer pays £12,342 on £58,000 before 2017 and £14,102 now (tax before the reduction £15,702, reduction £1,600): £1,760 more. The same figures in England cost £1,600 more.
Can my spouse or civil partner help reduce the Section 24 cost?
Possibly. Income from property held jointly by spouses or civil partners living together is split 50:50 by default (ITA 2007 s.836). If your beneficial interests are genuinely unequal, you can make a joint declaration and give HMRC notice on Form 17 within 60 days; it applies to income from the date of the declaration and the income split must match the ownership split (s.837). Transfers between spouses living together are at no gain, no loss for Capital Gains Tax (TCGA 1992 s.58). Stamp Duty Land Tax can be due if the receiving spouse takes on part of the mortgage, because that counts as consideration, and most buy-to-let lenders must consent to a change of ownership. Moving income to a spouse with unused basic-rate band means more of the profit is taxed at 20%; the finance-cost reduction follows the person taxed on the income. Unmarried partners do not get the no gain, no loss rule. Take advice before changing ownership.
Should I incorporate my BTL portfolio into a limited company?
Section 24 does not apply to companies: a company deducts interest under the loan relationship rules (CTA 2009 Part 5). The trade-offs are significant. SDLT: a transfer to a company you are connected with is charged on at least market value (FA 2003 s.53), and companies pay the higher residential rates, which are 5 points above the standard rates in every band, on dwellings of £40,000 or more (a 17% rate may apply instead above £500,000). CGT: the transfer is a disposal at market value; residential gains are taxed at 18% or 24% (24% since 6 April 2024). Incorporation relief (TCGA 1992 s.162) can defer the gain only where a business is transferred as a going concern for shares, and whether a letting portfolio is a business depends on the facts. Two layers of tax: Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between; dividends paid out are then taxed at up to 35.75% for a higher-rate shareholder in 2026/27. Profit paid out as a higher-rate dividend bears 47.96% in total at the small profits rate and 51.81% at the main rate. Incorporation tends to suit landlords who will reinvest profits inside the company. Get specialist advice.
How does refinancing affect the Section 24 calculation?
What matters is what the borrowed money is used for, not what it is secured on. Interest on money borrowed for the residential letting business is restricted, whether it is the purchase mortgage, a remortgage, or a loan for refurbishment or furnishings. A loan used partly for residential letting and partly for commercial letting or a trade is apportioned on a just and reasonable basis, and only the residential part is restricted (ITTOIA s.272B; HMRC PIM2056). Reducing interest does not reduce taxable profit under Section 24: where interest is the lowest of the three amounts and a higher-rate landlord's interest falls by £6,000, the tax reduction falls by £1,200, so the landlord is £4,800 a year better off after tax, not £6,000.
What about furnished holiday lets after April 2025?
The furnished holiday lettings regime was abolished from 6 April 2025 for Income Tax and CGT (1 April 2025 for Corporation Tax). Former FHL income is now part of the ordinary property business. That means the finance-cost restriction applies; capital allowances are not available for new expenditure, but replacement of domestic items relief is (an existing capital allowances pool can continue to get writing-down allowances); reliefs for trading business assets on a sale fall away; and the profits are no longer relevant UK earnings for pension relief.
What happens in a year when the rent does not cover the interest?
Example: salary £30,000, rent £15,000, other costs £4,000, interest £18,000. The property profit is £11,000 because interest is not deducted, so total income is £41,000 even though the property lost money in cash terms. The tax reduction is 20% of the lowest of £18,000 interest, £11,000 property profit and £28,430 adjusted total income: £2,200. Tax due is £3,486. The unused £7,000 of finance costs is carried forward and added to next year's finance costs for the same property business (s.274AA(4)). Genuine property losses, worked out without the finance costs, carry forward against future property profits (ITA 2007 s.118).
What changes for landlords after 2026/27?
From 6 April 2027 property income will have its own rates: in England and Northern Ireland 22% property basic, 42% property higher and 47% property additional (Budget 2025; Finance Act 2026 ss.6-7). In Wales and Scotland the property rates are set by the Senedd and the Scottish Parliament (Finance Act 2026 s.8). Neither had set them as at 15 October 2026: the Welsh Government plans to publish its draft 2027-28 Budget on 17 November 2026 and the Scottish Government its draft 2027-28 Budget on 3 December 2026. From 2027-28 the finance-cost reduction is given at the property basic rate rather than the basic rate (ITTOIA s.274AA(5) as amended by Finance Act 2026). Making Tax Digital for Income Tax applies from 6 April 2026 if qualifying income from self-employment and property was over £50,000 in 2024-25, from April 2027 over £30,000 in 2025-26, and from April 2028 over £20,000 in 2026-27.