Section 24 Explained: How Mortgage Interest Restrictions Affect Landlords 2026

Section 24 has cost UK landlords billions of pounds since 2017. If you own — or are considering buying — a buy-to-let property in your personal name, understanding this tax restriction is non-negotiable. This guide explains exactly what Section 24 is, how it calculates, and the strategies smart investors use to minimise its impact.

What Is Section 24?

Section 24 of the Finance Act 2015 changed the rules on how residential landlords deduct mortgage interest from their rental income. Before April 2017, landlords could deduct the full amount of their mortgage interest from their rental income before calculating tax. This was a significant tax advantage — especially for higher-rate taxpayers.

After Section 24, that deduction was replaced with a tax credit worth just 20% of your mortgage interest. The actual deduction was removed entirely from the tax calculation.

This matters enormously because:

A higher-rate (40%) taxpayer previously got £8,000 tax relief on £20,000 of interest (£20,000 × 40%)
Now they get only £4,000 (£20,000 × 20%) — halved
An additional-rate (45%) taxpayer loses even more: from £9,000 to £4,000 on the same £20,000 interest

How Section 24 Is Calculated: A Practical Example

Let's walk through a real example. You own a BTL property with:

Annual rental income: £18,000
Annual mortgage interest: £8,000
Other allowable expenses: £2,000
Your income tax band: Higher rate (40%)
Other income (salary): £45,000

Before Section 24 (Pre-2017)

Taxable rental profit: £18,000 − £8,000 − £2,000 = £8,000

Tax at 40% on £8,000 = £3,200

After Section 24 (Current Rules)

Taxable rental profit: £18,000 − £2,000 = £16,000

Tax on £16,000 at 40% = £6,400

Less: 20% mortgage interest credit (£8,000 × 20%) = £1,600

Net tax = £6,400 − £1,600 = £4,800

Your Section 24 cost: £4,800 − £3,200 = £1,600 extra per year

Use our free Section 24 calculator to model your own numbers instantly.

Why Basic-Rate Taxpayers Are Largely Protected

If you're a basic-rate (20%) taxpayer, Section 24 has minimal impact — because the 20% tax credit roughly matches your marginal rate. In the example above, if you were a basic-rate payer:

Tax before: £8,000 × 20% = £1,600

Tax after: (£16,000 × 20%) − £1,600 credit = £1,600. Same result.

However, once rental income pushes you into a higher tax bracket — which happens easily with multiple properties — Section 24 starts to bite hard.

The Numbers Are Getting Worse

Research by Capital Economics estimated that 93,000 landlords left the private rental sector between 2017 and 2025, partly driven by Section 24 and other tax changes. Many were higher-rate taxpayers with large portfolios who found their returns squeezed significantly.

With interest rates having risen substantially from the post-2008 lows, mortgage costs have increased for many landlords — and Section 24 means they can't offset that pain against their rental income in the way they could before 2017.

The combination of higher mortgage rates AND Section 24 restrictions has made leveraged BTL in a personal name significantly less attractive for higher-rate taxpayers compared to 2010–2015.

The Main Workaround: Limited Company Structure

The most common strategy to sidestep Section 24 is to hold rental properties inside a limited company (Ltd). Here's why it works:

Companies pay Corporation Tax at 25% (from April 2023) on profits — lower than the 40% or 45% personal rate
Mortgage interest is a fully deductible business expense — no Section 24 restriction
After-tax profits can be extracted as dividends (with further tax planning)

LTD vs Personal Name: Side-by-Side Comparison

Same deal: £50,000 rental income, £20,000 mortgage interest, £5,000 other expenses. Higher-rate taxpayer (40%).

Personal name: Taxable = £50,000 − £5,000 = £45,000 (Section 24 removes interest deduction). Tax credit = £20,000 × 20% = £4,000. Net tax ≈ £14,000+. Net profit ≈ £31,000.

Ltd company: Taxable = £50,000 − £20,000 − £5,000 = £25,000. Corporation tax at 25% = £6,250. Net profit ≈ £43,750.

Annual saving: ~£12,750

The Catch: Transferring Into a Company

Moving existing properties from personal name into a Ltd company is not straightforward:

SDLT applies: Transfers to a company are treated as a market-value disposal, triggering SDLT at the full rate (plus the 3% company surcharge on top)
CGT applies: The transfer is a disposal for CGT purposes — you may owe capital gains tax on any uplift in value
Legal costs: Transfer typically costs £2,000–£5,000 in legal fees
Mortgage: Most BTL mortgages don't permit transfer — you'd need to refinance

For new purchases, starting in a Ltd company from day one avoids these transfer costs. This is why many portfolio landlords now incorporate before buying their next property.

Use our BTL tax calculator to compare LTD vs personal name for your specific numbers.

Other Section 24 Considerations

HMOs and Different Rules

Houses in Multiple Occupation (HMOs) have slightly different tax treatment. Mortgage interest on HMOs held by trading landlords (those who actively manage the property as a business) may be treated differently. Consult a specialist tax adviser for HMO-specific advice.

Properties Outside the UK

Section 24 applies to UK residential properties owned by UK residents. Non-UK residents are subject to additional rules and may have different deductions available. The UK's non-resident landlord (NRL) scheme applies separate rules regardless.

Scotland and Wales

Section 24 affects how UK income tax is calculated on rental profits across all of Scotland, England, Wales, and Northern Ireland. The Scottish and Welsh tax authorities set their own income tax rates on non-savings income, but the Section 24 restriction on mortgage interest is a UK-wide rule.

What Should You Do?

If you're a higher-rate taxpayer with existing BTL properties in your personal name:

Calculate your Section 24 cost using our Section 24 calculator
Get a specialist tax adviser to model a Ltd company structure for your portfolio
Compare the upfront SDLT/CGT cost of transferring vs the annual saving
For your next purchase, seriously consider starting in a Ltd from day one

If you're a basic-rate taxpayer with one or two properties, Section 24 is unlikely to be a major concern — but it's still worth running the numbers to check.

Section 24 and EPC Requirements: A Double Hit

Since April 2026, new tenancies must meet minimum EPC rating C requirements (for new leases). From 2028, this extends to existing tenancies. Properties rated EPC D or E will require upgrades costing thousands of pounds. For landlords already squeezed by Section 24, these mandatory upgrade costs add further pressure.

The combination of Section 24 tax restriction AND EPC upgrade requirements means lower-quality properties in lower-demand areas may simply stop being viable BTL investments. Smart investors are using our EPC upgrade calculator to model upgrade costs before buying.

Frequently Asked Questions

What is Section 24 of the Finance Act?

Section 24 restricts how much mortgage interest landlords can deduct from rental income when calculating tax. Instead of deducting the full interest, landlords receive a tax credit worth just 20% of their mortgage interest. This applies to properties owned in a personal name.

When did Section 24 come into effect?

Section 24 was phased in from April 2017 and became fully effective from April 2020. Since then, all landlords with mortgages on their properties are affected regardless of when they bought.

How much does Section 24 cost landlords?

It depends on your tax rate and mortgage interest. A higher-rate taxpayer paying £20,000/year in mortgage interest loses £8,000 in tax relief (the difference between 40% deduction and 20% credit). This adds approximately £667/month to their tax bill. Use our Section 24 calculator to get your exact figure.

Who is worst affected by Section 24?

Higher-rate (40%) and additional-rate (45%) taxpayers are most severely impacted. Basic-rate (20%) taxpayers are largely unaffected because the 20% tax credit matches their tax rate. Landlords with large mortgages relative to their rental income feel the biggest hit.

How do I avoid Section 24?

The most common workaround is holding properties in a limited company (Ltd). Companies pay 25% corporation tax on profits, and mortgage interest is a fully deductible business expense — no Section 24 restriction. However, transferring existing properties into a company triggers SDLT (at 3% surcharge), legal costs, and potential CGT. Weigh the long-term savings against upfront costs.

Does Section 24 apply in Scotland and Wales?

Yes. Section 24 applies to all UK landlords on residential properties. Scotland and Wales have their own Land and Buildings Transaction Tax and Land Transaction Tax respectively, but the mortgage interest restriction still applies to income tax on rental profits across the whole UK.