Section 24 and income
Mortgage interest tax relief for landlords
Can you claim mortgage interest on a buy-to-let? Yes, as a 20% tax credit, not a deduction. How Section 24 works, with numbers, and why companies still deduct it.
Yes, you can claim mortgage interest on a buy-to-let, but if you own it personally you claim it as a 20% tax credit, not a deduction from your rent. That means you pay tax on your rent before interest, then take 20% of the interest off the bill. For a basic-rate landlord, that works as before. For a higher-rate landlord, it doesn't. Companies are not affected and still deduct interest in full.
This article explains the rule, shows the numbers and sets out what it means in practice.
How the old rule worked
Until April 2017, landlords deducted mortgage interest from rent and paid tax on what was left. The finance cost restriction (section 272A of the Income Tax (Trading and Other Income) Act 2005) phased that out. In 2017/18 75% of interest was deductible, then 50% in 2018/19 and 25% in 2019/20. Since 2020/21, none is. The credit replaced it.
How the credit works now
For 2026/27 the credit is 20% of your finance costs, limited to the lowest of:
- your finance costs for the year;
- your property profits (rent less allowable expenses, before interest);
- your taxable income above the personal allowance, excluding savings and dividends.
Anything the limit stops you using carries forward to a later year. Finance costs include mortgage interest, interest on loans for furnishings and certain arrangement fees. The capital element of repayments never counts. See our page on Section 24 for the wider picture.
A worked example
This is an illustration, not a client example. A landlord earns a £60,000 salary and owns a property let for £30,000 a year. Other allowable costs are £4,000 and mortgage interest is £12,000. The landlord lives in England.
| Before Section 24 | 2026/27 | |
|---|---|---|
| Rent | 30,000 | 30,000 |
| Other costs | (4,000) | (4,000) |
| Mortgage interest | (12,000) | not deducted |
| Taxable property profit | 14,000 | 26,000 |
| Tax at 40% | 5,600 | 10,400 |
| Less credit: 20% of £12,000 | none | (2,400) |
| Tax on the rents | 5,600 | 8,000 |
The landlord pays £2,400 more than under the old rules. That is the interest of £12,000 taxed at 40% (£4,800), with only £2,400 coming back.
A basic-rate landlord does not usually lose out. If the same profit sits entirely within the 20% band, tax on £26,000 at 20% less 20% of £12,000 is the same as tax on £14,000 at 20%. But it is not always that simple. Adding the interest back to income can push part of your profit into the higher rate band, and that is where the cost arises.
What changes in April 2027
From 6 April 2027, property income is taxed at 22%, 42% and 47% in England, Wales and Northern Ireland, and the credit rises to 22%. Using the same landlord:
| 2027/28 | £ |
|---|---|
| Tax on £26,000 at 42% | 10,920 |
| Less credit: 22% of £12,000 | (2,640) |
| Tax on the rents | 8,280 |
That is £280 more than 2026/27, about 2% of the £14,000 profit after interest. Our article on the 2027 property income rates goes through it in full.
Why companies still deduct interest
A company pays corporation tax on its rental profit after deducting finance costs, so Section 24 does not apply. At 19% on profits up to £50,000 and 25% above £250,000, a company often pays less tax on a heavily mortgaged portfolio than an individual higher-rate landlord. But there are costs: moving properties already owned personally can trigger capital gains tax and SDLT, company mortgages can be dearer, and profits taken out as dividends are taxed again. Buying new properties in a company avoids the transfer costs.
Who feels it most
- Higher and additional rate landlords pay 40% or 45% on interest but get 20% back.
- Highly geared landlords, where interest is a large share of rent.
- Landlords near a threshold. The added income can cost the personal allowance above £100,000 or trigger the Child Benefit charge.
- Landlords on interest-only loans. The interest stays higher for longer.
Our Section 24 calculator shows the cost for your own portfolio, and seven ways landlords respond to Section 24 compares the options.
Common mistakes
- Deducting interest as an expense. Entering interest among your expenses on a Self Assessment return overstates your costs. Finance costs have their own box, and the credit is calculated from it.
- Forgetting the carry forward. If the limit has stopped you using the whole credit, the balance carries forward. Make sure your records keep track of it.
- Assuming the credit gives relief at your own rate. It doesn't, which is why higher-rate landlords feel it.
- Missing the knock-on effects. Higher taxable income can affect the personal allowance, the Child Benefit charge and, from April 2027, the property income rates.
- Treating a company as automatically better. It can be, but it depends on profit, borrowing and your plans for the money.
Joint ownership and Section 24
Where a married couple or civil partners own a property jointly, rental profit is split 50:50 by default, and so are the finance costs. If the shares are unequal, a Form 17 declaration lets you be taxed on your real shares, and it must be sent to HMRC within 60 days of signing. Each owner then gets the credit on their own share of the interest, limited by their own income. For a couple with different incomes, the credit may be more valuable to one than the other, and the split of income and interest is worth reviewing with that in mind.
Talk to us
If you are not sure what Section 24 is costing you, or whether a company would help, book a call. We will work through your numbers on a fixed fee agreed upfront.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
