Landlord | Section 24
Section 24 Explained: How the Mortgage Interest Restriction Hits UK Landlords
Section 24 is the single biggest reason buy-to-let tax bills stopped making sense to landlords. Before it, mortgage interest was simply a cost you deducted from rent before working out profit. Now it is not a deduction at all. Instead you are taxed on rent before interest, and given a flat 20 per cent credit against the bill. For a higher-rate landlord with a real mortgage, that change is worth thousands a year, and it catches people who have done nothing wrong.
How the old way and the new way differ
Old method: rent minus interest minus costs equals profit, taxed at your rate. New method: rent minus costs (interest excluded) equals a larger taxable profit, taxed in full, then a credit of 20 per cent of the interest is subtracted from the tax due. For a basic-rate taxpayer the two roughly match. For a higher-rate taxpayer they do not, because you are taxed at 40 per cent on income that includes your interest, but only credited at 20 per cent.
A worked example
Rent £20,000. Interest £11,000. Other costs £2,500. Real cash profit: £6,500. Under Section 24 your taxable profit is £17,500. A higher-rate landlord pays roughly £7,000 tax, then receives a £2,200 credit (20 per cent of £11,000), leaving £4,800 of tax on £6,500 of cash. Over two thirds of the cash gone, on a let that looks healthy on paper.
The knock-on effects people miss
- It inflates your total income. The bigger taxable profit stacks on your salary and can tip you into higher rate, past the £100,000 personal-allowance taper, or into the child benefit charge.
- It makes other deductions matter more. With interest restricted, every legitimate repair, replacement item, agent fee and mile is worth capturing properly.
- It changes the company question. Companies still deduct interest in full, which is the whole reason leveraged landlords look at incorporation.
The levers that genuinely reduce the damage
- Capture every other cost. The restricted-interest world rewards thorough returns: documented repairs, replacement of domestic items relief, insurance, mileage and use of home.
- Spousal ownership shares. Where one partner pays a lower rate, shifting beneficial ownership (with the right declarations, and lender consent where mortgaged) moves profit to the cheaper band.
- Consider the company route on new purchases. Transferring existing lets can trigger CGT and stamp duty, so the cleaner candidates are usually new acquisitions. The honest comparison is in our guide on limited company versus personal name, and the mechanics of moving a portfolio are covered in should I incorporate my portfolio.
- Factor tax into remortgage decisions. Interest is your largest line, so the after-tax cost of each option, not just the headline rate, is what counts.
The accidental higher-rate landlord
A landlord on a £48,000 salary with one mortgaged flat thought she was a basic-rate taxpayer. Section 24 added £12,000 of assessed rental profit on top of her salary, pushing part of her income into higher rate and starting to erode her child benefit. Full deduction capture plus moving a share of the flat to her lower-earning husband brought her back under the line and saved around £2,600 a year.
Local service: landlord accountant. Also read: the landlord tax return guide.
Frequently Asked Questions
Does Section 24 apply to all landlords?
It applies to residential lets held personally or in a partnership. Companies are outside it, and furnished holiday lets historically were too, though that regime ended in April 2025.
I am a basic-rate taxpayer. Am I affected?
Less severely, because the 20 per cent credit roughly matches your rate. But the inflated taxable profit can itself push you into higher rate, so you can be dragged in indirectly.
Is the 20 per cent credit ever wasted?
Yes. If your tax bill is too low to absorb the full credit in a year, the unused part carries forward. It needs tracking on the return so it is not lost.
Can I get around it by putting rent through a company?
A company deducts interest in full, but transferring existing property triggers CGT and stamp duty, and taking money out of the company is taxed again. It usually works best on new purchases, not existing lets.
Do arrangement and broker fees still count?
Mortgage arrangement and broker fees for a let are generally deductible revenue costs, spread where appropriate. They are separate from the interest restriction.
How does it interact with the £100,000 trap?
Badly. The larger assessed profit can push total income over £100,000, where the personal allowance tapers and the effective marginal rate hits 60 per cent. Pension contributions are the usual remedy.
Will splitting ownership with my spouse really help?
Where your spouse pays a lower rate, yes, but it needs the correct beneficial-ownership declaration and, where there is a mortgage, lender consent. Done casually it does not hold.
What records matter most under Section 24?
Your annual mortgage interest certificate, every repair and cost invoice, and a clean income schedule. The restriction punishes incomplete returns hardest.
Caught by Section 24?
Free 15-minute call: your real numbers run through the levers above, and an honest answer on what would actually help.
Or email info@yourtaxhelp.co.uk
General guidance only. Not personal tax advice. Contact us for advice specific to your situation. Figures relate to the 2025/26 tax year unless otherwise stated.