Section 24 landlords guide: how mortgage interest tax relief works

For section 24 landlords, meaning individuals who let residential property, mortgage interest tax relief landlords once took for granted has gone: section 24 is the rule that changed how landlords get tax relief on mortgage interest: instead of deducting finance costs from rental income, individual residential landlords now get a tax reduction worth the basic rate of Income Tax [1][2]. It's called "section 24" because it was introduced by section 24 of the Finance Act 2015, which inserted section 272A, "Restricting deductions for finance costs related to residential property", into the Income Tax (Trading and Other Income) Act 2005 [3][4]. The change was phased in from 6 April 2017 and has been fully in place since 6 April 2020 [1].

This is general information based on HMRC guidance, not tax advice. Speak to an accountant about your own position.

What section 24 changed for landlords

Before the change, a landlord with £10,000 of rent and £4,000 of mortgage interest would pay tax on £6,000 (before other expenses). A higher-rate taxpayer effectively got 40% relief on that interest.

Since 6 April 2020, Income Tax relief on all residential property finance costs is restricted to the basic rate [2]. The interest no longer reduces your property profit. You pay tax on the larger profit, then take off a 20% tax reduction [1]. For a basic-rate taxpayer whose income stays in the basic-rate band, the bill often comes out the same. For a higher-rate taxpayer, or someone pushed into a higher band by the change, it costs more.

HMRC's own case study notes that the landlord in its first example "is one of the estimated 82% of landlords that don't have any additional tax to pay", because her income without the finance cost deduction stays below the higher-rate threshold [1]. So section 24 doesn't hurt every landlord, but it hits higher-rate and heavily mortgaged landlords hardest.

The phase-in timeline

HMRC phased the restriction in over four tax years [1]:

If you're filing for the current tax year, you're in the bottom row: none of your residential finance costs are deducted, and all of them go into the tax reduction calculation.

Section 24 landlords: who it applies to

HMRC says you're affected if you are [2]:

• an individual UK resident who lets residential properties in the UK or overseas,
• an individual non-UK resident who lets residential properties in the UK,
• an individual who lets residential properties in partnership,
• a trustee or beneficiary of trusts liable for Income Tax on residential property profits.

Who isn't affected: UK resident companies and non-UK resident companies. They continue to get relief for interest and other finance costs in the usual way [2].

HMRC is clear that all residential landlords with finance costs are affected, but only some will pay more tax [2].

Which finance costs section 24 covers

Section 24 isn't only about mortgage interest. The restricted finance costs include interest on [2]:

• mortgages,
• loans, including loans to buy furnishings,
• overdrafts.

Other costs affected are alternative finance returns; fees and any other incidental costs for getting or repaying mortgages and loans; and discounts, premiums and disguised interest [2].

Only the interest is in scope. The capital part of your mortgage repayments was never deductible and still isn't.

Mixed loans. If a loan funds both residential and commercial property, you use a reasonable apportionment of the interest; only the residential share is restricted [2]. The same applies to a loan that's partly for a self-employed trade [2]. For a property that isn't all residential, such as a flat above a shop, HMRC points you to its Property Manual for how to apportion [1].

Non-residential lets. You can still claim expenses for the interest on a mortgage to buy a non-residential let property [2].

How mortgage interest tax relief for landlords is worked out

This is the core of section 24, and it's where most confusion comes from. HMRC's method is [1]:

1. Work out your property profit without deducting finance costs. Take your rental income and deduct your other allowable expenses (repairs, insurance, agent fees and so on), but not mortgage interest.
2. Work out three figures:
   • Finance costs: the costs not deducted from rental income in the tax year, plus any finance costs brought forward.
   • Property business profits: the profits of the property business in the tax year, after any brought-forward losses.
   • Adjusted total income: your income (after losses and reliefs, excluding savings and dividend income) that exceeds your Personal Allowance.
3. Take the lowest of the three.
4. Multiply it by the basic rate (20%). That's your tax reduction.
5. Carry forward any shortfall. If the lowest figure was your profits or adjusted total income rather than finance costs, the difference is carried forward to the following year's calculation.

The reduction can't be used to create a tax refund [1].

Section 24 worked examples from HMRC

HMRC publishes case studies using 2016 to 2017 rates for simplicity (Personal Allowance £11,000, basic rate up to £43,000) [1]. The numbers below are HMRC's, so treat the bands as illustrations, not this year's rates.

Example 1: no extra tax

A landlord has £52,000 of residential rent as her only income, £20,000 mortgage interest and £9,000 of other expenses [1].

• Before the restriction: profit £23,000, tax £2,400.
• After: profit £43,000 (interest not deducted). Tax at 20% on £32,000 above the allowance is £6,400. Tax reduction is 20% of the lowest of £20,000 finance costs, £43,000 profits and £32,000 adjusted income, so 20% × £20,000 = £4,000. Final tax: £2,400 [1].

Same bill, because her income without the interest deduction stays in the basic-rate band.

Example 2: extra tax

A landlord earns £35,000 from self-employment, plus £18,000 rent, £8,000 mortgage interest and £2,000 of other expenses [1].

• Before: total income £43,000, tax £6,400.
• After: property profit £16,000, total income £51,000. Tax is £6,400 at basic rate plus £3,200 at higher rate (£8,000 × 40%), less a £1,600 reduction (20% × £8,000). Final tax: £8,000 [1].

He pays £1,600 more and becomes a higher-rate taxpayer. HMRC also flags that, with total income over £50,000, a High Income Child Benefit Charge may apply if he or his partner claims Child Benefit [1]. That knock-on effect is one of the less obvious costs of section 24.

What this means in practice

Section 24 makes your taxable income look higher than your real profit. That can affect your tax band and anything that tests your income, such as the Child Benefit charge in HMRC's example [1].

Carrying forward unused finance costs

If your property profit or adjusted total income is lower than your finance costs, you only get 20% of the lower figure this year. The unused finance costs are carried forward and added to next year's finance costs [1]. That matters for landlords with a void period, a big repair year or low other income. The relief isn't lost; it's deferred.

Section 24 and your tax return

You still report your finance costs on your Self Assessment return. You enter them as residential finance costs rather than as an expense, and the tax reduction is calculated from them. Good records make this easy: keep your mortgage statements showing interest for the tax year, separate from capital repayments, and any arrangement or broker fees [2].

HMRC requires you to keep records of your rental income and expenses, and you may have to pay a penalty if they aren't accurate and readable or aren't kept for the required time [2].

Common section 24 mistakes

• Deducting interest as an expense. For residential lets, it's not deductible. It goes into the tax reduction calculation instead [1][2].
• Claiming capital repayments. Only interest and qualifying finance costs count.
• Forgetting loan fees. Arrangement fees and incidental costs of getting or repaying a mortgage are finance costs too [2].
• Ignoring furnishing loans and overdrafts. These are restricted finance costs [2].
• Not apportioning mixed loans. Only the residential share is restricted [2].
• Losing track of carried-forward amounts. They reduce future tax [1].

Where Gaffy fits

Gaffy doesn't calculate your tax. What it does is keep the property records that make tax time and everything else easier: each property's documents, certificates and repair history in one place, with expiry reminders for gas safety, EICR and EPC. Repairs are a deductible expense, and a dated repair log with invoices and photos makes your expenses easy to evidence.

Gaffy costs £12 a month for up to 5 properties, plus £4 a month for each additional property, and the first month is free. We'll set your properties up for you.

People also ask

What is section 24 for landlords?

It's the restriction on Income Tax relief for residential finance costs. Individual landlords no longer deduct mortgage interest from rent; they get a basic-rate tax reduction instead [1][2].

Can landlords still claim mortgage interest?

Not as a deduction for residential lets. You get a tax reduction of 20% of the lowest of your finance costs, property profits or adjusted total income [1]. Interest on a mortgage for a non-residential let can still be claimed as an expense [2].

Does section 24 apply to limited companies?

No. UK and non-UK resident companies aren't affected and get relief for interest in the usual way [2].

When did section 24 come in?

It was phased in from 6 April 2017 and fully applied from 6 April 2020 [1].

Is the 20% tax credit refundable?

No. The reduction can't create a tax refund, but unused amounts can be carried forward [1].

If the mortgaged rental was inherited, read buy-to-let mortgage on inherited property.

FAQ

Does section 24 affect basic-rate taxpayers?

Often not. HMRC estimated 82% of landlords have no additional tax to pay, where their income without the interest deduction stays below the higher-rate threshold [1].

Do arrangement fees count?

Yes. Fees and incidental costs for getting or repaying mortgages and loans are restricted finance costs [2].

What about a loan to buy furniture for a let?

That's a restricted finance cost too [2].

Does Gaffy do my tax return?

No. Gaffy keeps your property documents, certificates and repair records organised. Use an accountant or HMRC-recognised software for your return.

What does Gaffy cost?

£12 a month for up to 5 properties, plus £4 a month per extra property. First month free, and we'll set your properties up for you.

Try Gaffy free for a month

Sources

1. HMRC, Tax relief for residential landlords: how it's worked out: https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies
2. HMRC, Income Tax when you rent out a property: working out your rental income: https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income
3. Income Tax (Trading and Other Income) Act 2005, section 272A: https://www.legislation.gov.uk/ukpga/2005/5/section/272A
4. Finance Act 2015, section 24 (as enacted): https://www.legislation.gov.uk/ukpga/2015/33/section/24/enacted