Section 24 explained: why your buy-to-let tax bill is bigger than your profit
Section 24 stops individual landlords deducting mortgage interest from rental income. Instead you are taxed on the full rent and given a flat 20% tax credit for the interest. For higher-rate landlords that credit is worth far less than the old deduction, so the tax due can be larger than the real profit left once the mortgage is paid.
Key takeaways
- Individual landlords can no longer deduct mortgage interest; they get a 20% credit instead.
- Basic-rate landlords are broadly unaffected. Higher-rate landlords are hit hard.
- Your full rent counts as income, which can push you into the higher-rate band.
- Limited companies are exempt, because they still deduct interest in full.
What did Section 24 actually change?
Until 2017, a landlord who owned property in their own name deducted mortgage interest like any other cost: rent in, costs out, tax on what was left. Section 24 removed that deduction for residential landlords, phasing the change in between 2017 and 2020. Since the 2020 to 2021 tax year it has been fully in force.
Two things now happen. You are taxed on your full rental income with mortgage interest added back in, and you then get a 20% tax credit on your finance costs deducted from the bill at the end. For a basic-rate taxpayer that roughly cancels out. For a higher-rate taxpayer it does not come close.
Why is my tax bill bigger than my actual profit?
The credit is fixed at 20% whatever rate you actually pay. A higher-rate landlord who used to get relief on interest at 40% now gets it at 20%, and the other half simply disappears. The chart below takes one property, £15,000 of rent with £9,000 of mortgage interest and £2,000 of other costs, and shows the tax on the same £4,000 of real profit for a basic-rate and a higher-rate landlord, before and after Section 24.
Here is the higher-rate case line by line. Your real economic profit is £4,000 in both columns, the rent less every cost including the mortgage. Under the old rules you paid £1,600 on it. Under Section 24 you pay £3,400 on the same £4,000.
| Old rules | Section 24 (now) | |
|---|---|---|
| Rent | £15,000 | £15,000 |
| Mortgage interest | deducted | not deducted |
| Taxable rental figure | £4,000 | £13,000 |
| Tax at 40% | £1,600 | £5,200 |
| Less 20% credit on £9,000 | – | −£1,800 |
| Tax due | £1,600 | £3,400 |
Does Section 24 affect basic-rate landlords?
Broadly, no. A basic-rate taxpayer already gets relief at 20%, which is exactly what the credit gives back, so the bill lands in much the same place as before. The catch is indirect: because your full rent now counts as income, a basic-rate landlord can be pushed over the £50,270 higher-rate threshold on paper, at which point Section 24 starts to bite. That is the trap in the next section.
Does Section 24 push you into a higher tax band?
It can, and this is the sting most landlords miss. Your full rent is added to your other income before any interest comes off, so landlords who felt safely basic-rate can be tipped over the higher-rate line even though a chunk of that "income" is really the bank's. Cross certain thresholds and other charges follow: the loss of the personal allowance above £100,000, the High Income Child Benefit Charge, and reduced savings allowances. With income-tax thresholds frozen, a few more landlords get pulled up a band every year without their rent changing at all.
What can landlords do about Section 24?
There is no single fix, and the right answer depends entirely on your numbers, but the levers are fairly consistent. Some landlords review the mortgage itself, since less borrowing means less restricted interest. Some move lower-taxed income to a spouse by adjusting how the property is owned. Some run the figures on holding future purchases through a limited company, where interest is still fully deductible. Each has costs and trade-offs of its own, so they are worth modelling properly rather than acting on a hunch.
Get the paperwork right before the tax gets complicated
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Frequently asked questions
Does Section 24 apply to limited companies? No. Companies deduct mortgage interest in full and pay Corporation Tax on the net profit, which is exactly why so many landlords look at incorporating.
Can I still deduct letting-agent fees and repairs? Yes. Only finance costs are restricted. Letting fees, repairs, insurance, safety certificates and the like are still fully deductible.
Does it apply to commercial property? No. Section 24 only bites on residential property finance costs.
Is it going to be repealed? There is no announced repeal. It has been fully in force since 2020 to 2021 and applies for 2026 to 2027.
This guide is general information for landlords in England, not tax or legal advice for your specific circumstances. Check the current rules on GOV.UK or speak to an accountant before acting.