Section 24 and mortgage interest relief

You add back your mortgage interest and other finance costs, so you're taxed on the rental profit before interest. HMRC then gives a tax reduction equal to the basic rate on the lowest of three figures: your finance costs (plus any unused amount brought forward), your property profits for the year, and your taxable income above your personal allowance excluding savings and dividends. For 2026/27 the reduction is 20%. Anything that can't be relieved this year carries forward to the next.

No. Section 24 only restricts finance costs on loans that relate to residential lettings, which the legislation calls dwelling-related loans. Interest on a loan used for a shop, office or other commercial property let as part of your property business is still deducted in full when working out your profit. If a portfolio mixes residential and commercial property, the borrowing needs to be split sensibly between the two, and good records of what each loan funded make a real difference.

Often not directly, because a basic-rate taxpayer gets a 20% credit on interest that would otherwise have been relieved at 20%. The catch is band creep. Because the interest is added back, your taxable income rises and part of it can tip into the higher rate band. Landlords with large mortgages and modest rental margins are most exposed, sometimes paying higher-rate tax on income they never actually had in their pocket.

Yes, under the rules legislated in Finance Act 2026. From 6 April 2027, rental profits in England, Wales and Northern Ireland are taxed at new property rates of 22%, 42% and 47%, and the Section 24 credit is calculated at the property basic rate of 22% instead of 20%. The higher credit offsets the rate rise on the interest itself, so the extra tax is roughly 2% of your profit after interest.

Broadly, about 2% more on rental profit after interest. Take a higher-rate landlord with £50,000 of rent less expenses before interest and £20,000 of interest. In 2026/27 the bill on that income is 40% of £50,000 less a 20% credit on £20,000: £16,000. In 2027/28 it becomes 42% of £50,000 less a 22% credit on £20,000: £16,600. Real figures depend on your bands and other income.

It can. The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000 and disappears at £125,140. Because Section 24 adds your mortgage interest back into income, your adjusted net income can cross £100,000 even if your real profit is well below it. The effective tax rate in that band is very high, which is why landlords near the threshold should model their position each year.

It can do. The High Income Child Benefit Charge applies where adjusted net income is over £60,000, and the full benefit is clawed back at £80,000. Since Section 24 adds mortgage interest back into your income, rental profits can pull you over the threshold even though your cash income hasn't changed. Families claiming child benefit with a mortgaged portfolio should check where their adjusted net income really falls.

It isn't lost. If the credit is capped, for example because finance costs exceed your property profits or your taxable income is low, the unrelieved finance costs carry forward to later years with no time limit. They're added to the next year's finance costs when the credit is worked out. That carried-forward figure is worth tracking, because it has value if your rental profits rise or you restructure.

Yes. The restriction applies to individuals, including individuals in a partnership, and to trustees, personal representatives and beneficiaries of estates. Companies are the main exception. Trust and estate cases have their own rules for the tax reduction, so a portfolio held in a trust, or one being administered after a death, needs the calculation done carefully rather than assumed to work like a personal return.

No. Section 24 applies to individuals whether they let property alone or in partnership, so simply forming a partnership doesn't restore full interest relief. A genuine partnership can be useful in other ways, for example for flexible profit sharing or as part of a later move to a company, but it isn't a fix in itself. Be wary of schemes promising otherwise, as HMRC has challenged several.

Paying down debt removes the restricted interest, so it is the simplest fix, and it suits landlords with cash or properties they'd sell anyway. But capital tied up in a property earns only the rental yield, you may face early repayment charges, and selling to repay debt can trigger capital gains tax. It's worth comparing the after-tax saving on interest with what that money could earn or fund elsewhere.

Moving a share to a spouse or civil partner with spare basic-rate band can cut Section 24 tax. Transfers between spouses or civil partners living together are normally at no gain and no loss for capital gains tax, so the gain isn't triggered. Watch for SDLT where mortgage debt moves with the share, lender consent and the need for the beneficial ownership to be genuine.

Form 17 must reach HMRC within 60 days of the date the last spouse or civil partner signed it. HMRC applies that limit strictly and can't extend it. The new income split applies from the signature date, not earlier, so it can't be backdated. Form 17 only works where you genuinely own the property in unequal shares, usually evidenced by a declaration of trust, and the income split matches the ownership.

No. Joint tenants own the whole property together, not separate shares, so they can't declare unequal interests. Married couples and civil partners who own as joint tenants are taxed 50:50 on the income. To change that, you would first need to sever the joint tenancy so you hold as tenants in common, then record unequal shares, usually with a declaration of trust, before sending Form 17.

The restriction itself works the same way, but Scottish taxpayers pay Scottish income tax rates on rental profits, so the gap between the tax you pay on interest and the 20% credit can be wider. From April 2027 the Scottish Parliament and the Senedd can set their own property income rates, and the details for Scottish landlords were still to be confirmed at the time of writing. We'll check the current position for you.

Yes. Furnished holiday lets used to be outside Section 24, but the special regime was abolished from 6 April 2025 for income tax. Since then, finance costs on former holiday lets are restricted in the same way as other residential lettings, with only the basic-rate credit. Owners who relied on full interest relief for holiday lets often see a sharp rise in tax and should review their options.

Yes. Companies aren't affected by Section 24, so interest on a company's buy-to-let mortgage is deducted in full against its rental profits before corporation tax. That's why many growing landlords buy new properties through a company while keeping existing ones personally. The trade-offs are company mortgage terms, SDLT surcharges on every purchase, and tax when you take money out, so it's worth modelling first.