Section 24 and rental income

Your real profit is rent less all costs, including mortgage interest. Your taxable rental profit is rent less costs except residential finance costs, which Section 24 doesn't let you deduct. So taxable profit is higher than real profit by the amount of the interest. You then get a tax credit at the basic rate on the interest, 20% for 2026/27 and 22% from 2027/28, which only partly makes up for it.

Not that year. The credit is given on the lowest of your finance costs, your property profits for the year after brought-forward losses, and your adjusted total income above allowances. If your property business has no profit, the credit for the year is nil. The unused finance costs are not lost, though: they carry forward indefinitely and can be relieved in later years when the business makes a profit.

Because Section 24 taxes you on rent before mortgage interest. A higher-rate landlord with £30,000 of profit before interest and £15,000 of interest pays 40% on £30,000 and gets back only 20% of £15,000, so the tax is £9,000 on a real profit of £15,000, an effective rate of 60%. The more heavily geared the portfolio, the further the effective rate climbs.

Losses from a property business carry forward and are set against future profits of the same property business, and HMRC has confirmed this continues under the new property income rates from 2027/28. They generally can't be set against your salary or other income. Brought-forward losses reduce your property profit before the Section 24 credit is calculated, which can reduce the credit in that year, with the unused amount carried forward.

It is a reduction in your overall income tax bill, not just the tax on rent, so in that sense yes. But it is capped: the credit can't be given on more than your property profits, and if your finance costs exceed your adjusted total income (non-savings, non-dividend income after allowances) the credit is scaled down. Anything unused carries forward to later years.

Add your salary, pensions, other income and rental profit before mortgage interest. If the total, less your personal allowance, is more than £37,700, part of your income is in the higher rate band, which starts at £50,271 for someone with a full personal allowance. Many landlords whose profit after interest looks modest are higher-rate taxpayers because Section 24 adds the interest back.

Yes. Section 24 applies to individuals however they own residential property, including jointly with a sibling, friend or business partner. Each co-owner is taxed on their share of the rental profit before interest and gets the credit on their share of the finance costs. The Form 17 election is only for married couples and civil partners, so other co-owners are taxed on their actual shares.

For the properties the company owns, yes, from the day it owns them: companies aren't subject to Section 24 and deduct interest in full. But incorporating usually means refinancing, capital gains tax considerations and SDLT on market value, so the benefit has to outweigh those costs. Properties you keep personally stay within Section 24, including during any period before the transfer completes.

Keep annual mortgage statements showing interest charged, loan offers, arrangement fee invoices and records of what each loan was used for. HMRC looks at how borrowed money was spent, so if you remortgaged to release equity, keep evidence that the funds went into the rental business. Good records also make Making Tax Digital quarterly updates much easier to prepare.

Scottish taxpayers pay Scottish rates on rental profits: 19% starter, 20% basic, 21% intermediate, 42% higher, 45% advanced and 48% top rate, with different bands from the rest of the UK. The Finance Act 2026 lets the Scottish Parliament set separate property income rates from 2027/28, but we have not seen those rates confirmed. Section 24 relief is currently given at 20% for all UK taxpayers.

Start by measuring it. Work out your tax with and without the restriction for 2026/27 and 2027/28, using our Section 24 calculator or your last tax return. Then look at the short list of responses that fit your situation, such as rebalancing ownership with a spouse, paying down debt, selling weaker properties or using a company. We review the options on a fixed fee and respond the same working day.