Mortgage Interest Tax Relief for Landlords – How Section 24 Actually Works

Section 24 Landlord Tax Relief is one of the most important tax rules for individual residential landlords with borrowing. It changed the way mortgage interest and other qualifying finance costs receive Income Tax relief, and it can produce a tax bill that looks surprisingly high compared with the cash profit left after the mortgage has been paid. Understanding Section 24 Landlord Tax Relief is therefore essential for landlords who want to forecast tax accurately rather than relying only on rent received less monthly mortgage payments.

The phrase “landlords cannot claim mortgage interest anymore” is an oversimplification. Under Section 24 Landlord Tax Relief, qualifying residential finance costs are generally not deducted when calculating the taxable property profit of an individual landlord. Instead, a separate tax reduction is calculated later in the Income Tax computation. For 2026/27 that reduction is normally based on 20%, subject to statutory limits. Section 24 Landlord Tax Relief changes the timing and value of the relief rather than making all mortgage interest completely irrelevant.

The distinction matters most for landlords whose other income already uses some or all of their basic-rate band. Section 24 Landlord Tax Relief can cause more property profit to sit in the higher-rate or additional-rate bands because the mortgage interest no longer reduces rental profit before the landlord’s tax band is determined. A landlord may therefore have modest cash profit from a highly geared property while still reporting a much larger taxable property profit.

What is Section 24 Landlord Tax Relief?

Section 24 Landlord Tax Relief is the commonly used description for the restriction on Income Tax relief for finance costs connected with residential property businesses. The restriction was phased in from 2017/18 and has applied in full since 2020/21. Before Section 24 Landlord Tax Relief, an individual residential landlord could generally deduct qualifying mortgage interest from rental income when calculating taxable property profit. Once Section 24 Landlord Tax Relief became fully effective, that deduction was replaced by a tax reducer.

Consider a simple property receiving £18,000 rent with £3,000 of ordinary allowable expenses and £8,000 of mortgage interest. Before Section 24 Landlord Tax Relief, the landlord might have calculated taxable rental profit as £7,000. Under Section 24 Landlord Tax Relief, the taxable property profit is normally £15,000 before the separate finance-cost reduction is considered. The interest still matters, but it does not reduce the initial property profit figure in the same way.

This is why Section 24 Landlord Tax Relief is sometimes described as a restriction rather than the complete abolition of relief. The mechanics matter. A landlord who is wholly within the basic-rate band and can use the full tax reduction may find the ultimate tax effect relatively modest. A higher-rate taxpayer can be much more exposed because Section 24 Landlord Tax Relief may tax part of the property profit at 40% while the qualifying finance cost receives relief at only 20% for 2026/27.

Section 24 Landlord Tax Relief also does not mean that HMRC is taxing the mortgage debt itself. Income Tax is charged on property income calculated under tax legislation. The rule determines how finance costs are relieved. It is therefore important to separate a tax computation from a cash-flow calculation. A mortgage payment may be a major monthly cash outgoing, but Section 24 Landlord Tax Relief looks specifically at qualifying finance costs, not at every pound leaving the landlord’s bank account.

Which mortgage and finance costs are covered?

Section 24 Landlord Tax Relief can apply to interest on mortgages and other loans used for the residential property business. It can also cover certain overdraft interest, alternative finance returns and incidental finance costs. The important point is that Section 24 Landlord Tax Relief is concerned with the qualifying finance element. It does not turn repayments of borrowed capital into a tax-deductible expense.

Suppose a landlord pays £11,400 to a mortgage lender during the tax year. If £7,600 is interest and £3,800 is repayment of capital, Section 24 Landlord Tax Relief is relevant to the £7,600 interest figure, not the full £11,400 payment. The £3,800 capital repayment reduces the outstanding debt but is not an allowable revenue expense merely because it was paid in connection with the rental property.

For this reason, landlords should not use total mortgage payments from their bank statements as the finance-cost figure. Section 24 Landlord Tax Relief calculations should normally be based on the actual interest shown on mortgage statements or annual interest certificates. This is particularly important with repayment mortgages because the split between interest and capital can change throughout the mortgage term.

The purpose of the borrowing also matters. Section 24 Landlord Tax Relief does not make private borrowing allowable simply because the loan is secured against a rental property. If a landlord remortgages a buy-to-let and withdraws additional funds for personal spending, the tax treatment of the related interest needs to be considered carefully. The use of the borrowed money and the amount of qualifying business borrowing are relevant to the available relief.

How Section 24 Landlord Tax Relief is calculated in 2026/27

For 2026/27, Section 24 Landlord Tax Relief generally gives a basic-rate tax reduction of 20%. However, Section 24 Landlord Tax Relief is not always calculated as a simple 20% of all mortgage interest paid. The reducer is based on the lower of the relevant finance costs, the property business profits after brought-forward property losses, and adjusted total income above the Personal Allowance under the statutory rules.

This limitation is an important part of Section 24 Landlord Tax Relief. A landlord with £10,000 of qualifying mortgage interest does not automatically receive a £2,000 tax reduction in the current year. If the relevant property profit or adjusted total income is lower, Section 24 Landlord Tax Relief may restrict the amount used immediately. Unused qualifying finance costs can generally be carried forward.

The tax reduction under Section 24 Landlord Tax Relief also cannot by itself create an Income Tax repayment. Landlords should therefore keep a record of any finance costs carried forward for future years.

Example 1: basic-rate taxpayer

Assume salary income of £25,000, rent of £12,000, ordinary allowable expenses of £2,000 and mortgage interest of £4,000. Under Section 24 Landlord Tax Relief, taxable property profit is £10,000 because the £4,000 mortgage interest is not deducted at this stage.

Total income is £35,000. Using the 2026/27 Personal Allowance of £12,570, taxable income is £22,430. Tax at 20% is £4,486 before Section 24 Landlord Tax Relief. The potential finance-cost reduction is £800, being 20% of £4,000, assuming the full amount qualifies. Total Income Tax is therefore £3,686.

In this simplified case, Section 24 Landlord Tax Relief does not create an extra tax cost compared with giving relief at 20%, because the landlord remains within the basic-rate band.

Example 2: higher-rate taxpayer

Now assume salary of £45,000, rent of £18,000, ordinary property expenses of £3,000 and mortgage interest of £8,000. Under Section 24 Landlord Tax Relief, taxable property profit is £15,000 and total income is £60,000.

After the £12,570 Personal Allowance, taxable income is £47,430. The first £37,700 is taxed at 20% and £9,730 at 40%, producing £11,432 before Section 24 Landlord Tax Relief. A potential £1,600 finance-cost reduction then applies, giving total Income Tax of £9,832.

The property itself adds £3,346 to the tax bill compared with the tax on the £45,000 salary alone, despite cash-style rental profit after interest being only £7,000. Section 24 Landlord Tax Relief creates this difference because £15,000 enters the tax-band calculation before the finance-cost reducer is given. Part of the profit is taxed at 40%, while Section 24 Landlord Tax Relief gives relief on the mortgage interest at 20%.

Interest-only mortgages and repayment mortgages

Section 24 Landlord Tax Relief applies according to the nature of the finance cost, not according to whether the mortgage is labelled interest-only or repayment. With an interest-only mortgage, the monthly mortgage payment will usually consist largely or entirely of interest. With a repayment mortgage, each payment includes both interest and repayment of the loan principal.

If an interest-only landlord pays £9,000 of qualifying interest, Section 24 Landlord Tax Relief potentially applies to £9,000. If another landlord pays £13,000 on a repayment mortgage but only £8,500 is interest, Section 24 Landlord Tax Relief potentially applies to £8,500. The remaining £4,500 is capital repayment and does not qualify merely because it forms part of the monthly mortgage payment.

This matters when comparing investment returns. A repayment mortgage may create lower cash flow because part of the monthly payment is reducing the debt. Section 24 Landlord Tax Relief does not give tax relief for that capital reduction. However, the landlord is simultaneously building more equity in the property, so the cash-flow and wealth-building effects should be considered separately from the Income Tax computation.

Section 24 Landlord Tax Relief and jointly owned property

Section 24 Landlord Tax Relief is applied to each owner according to the property income and finance costs allocated to that person under the tax rules. Two people who jointly own the same property can therefore experience different outcomes because their other income, allowances and tax bands may be different.

For spouses and civil partners living together, income from jointly owned property is generally treated as arising equally unless the underlying beneficial ownership is unequal and the appropriate conditions are met to use that unequal split for Income Tax. Section 24 Landlord Tax Relief should therefore be considered alongside the ownership structure rather than in isolation.

A Form 17 declaration, where relevant, does not allow spouses simply to choose whichever rental-income split produces the lowest tax. The declared split must reflect the genuine beneficial ownership. Before altering ownership to manage Section 24 Landlord Tax Relief, landlords should consider mortgage lender requirements, legal ownership, Capital Gains Tax, Stamp Duty Land Tax or devolved equivalents, estate planning and the wider commercial consequences.

Unused finance costs and carry-forward relief

Another feature of Section 24 Landlord Tax Relief is the potential carry forward of qualifying finance costs that cannot be fully used for the current year’s tax reduction. This can happen where the property business profit is low, brought-forward losses reduce the relevant profit, or the landlord’s adjusted total income limits the reducer.

For example, a landlord may have £10,000 of qualifying finance costs but only £6,000 of relevant property business profit for the calculation. Section 24 Landlord Tax Relief may therefore limit the amount used in the current year, with the balance carried forward subject to the rules. The carried-forward amount can be considered when calculating the tax reduction in a later year.

Landlords should retain a clear schedule of unused finance costs. Section 24 Landlord Tax Relief carry-forwards can otherwise be missed when tax returns are prepared several years later or when the landlord changes accountant. Mortgage statements alone may not show how much tax relief was actually used, so the tax-return records are just as important as the lender records.

Common mistakes landlords make

One of the most common Section 24 Landlord Tax Relief errors is entering the full mortgage payment as an expense. Only qualifying interest and finance costs are relevant; capital repayment is not. Another error is deducting the mortgage interest from property profit and then also claiming the tax reducer, effectively attempting to obtain relief twice.

A further Section 24 Landlord Tax Relief mistake is assuming that 20% of all interest will definitely reduce the current tax bill. The statutory “lower of” calculation can limit the relief. Landlords should also avoid overlooking carried-forward finance costs, especially after years with property losses, substantial repairs or periods of vacancy.

Borrowing purpose is another area where Section 24 Landlord Tax Relief can become complex. Refinancing a property, drawing additional funds, replacing one loan with another or using borrowing across a wider property business can all require analysis. The fact that a mortgage is secured on a rental property does not by itself prove that every pound of interest qualifies.

Landlords can also misunderstand Section 24 Landlord Tax Relief when assessing profitability. Taxable profit is not the same as cash profit or total investment return. Capital repayments build equity, while capital expenditure may be treated differently from routine repairs.

Practical planning around Section 24

A sensible Section 24 Landlord Tax Relief review starts with accurate figures. Landlords should know gross rent, ordinary allowable expenditure, qualifying mortgage interest, capital repayments, carried-forward property losses and unused finance costs. They should then combine the property figures with salary, self-employment income, pensions, savings, dividends and other taxable income.

This broader calculation shows whether Section 24 Landlord Tax Relief pushes taxable income into a higher band or into the Personal Allowance taper. For 2026/27, the standard Personal Allowance is £12,570 and begins to reduce when adjusted net income exceeds £100,000. A landlord close to that level should therefore consider the interaction carefully rather than looking only at the property’s own tax calculation.

Planning may include reviewing mortgage costs, ensuring all legitimate non-finance expenses are claimed, considering pension contributions where appropriate, checking ownership of jointly held property and comparing personal versus company ownership for future acquisitions. Section 24 Landlord Tax Relief should be one part of that review, not the only factor.

Landlords should be particularly cautious about artificial arrangements promoted solely as a way around Section 24 Landlord Tax Relief. Tax planning should follow the genuine legal and commercial position. Any transfer of beneficial ownership, restructuring of debt or company incorporation should have proper documentation and should be assessed for all relevant taxes rather than just the annual mortgage-interest restriction.

What changes from April 2027?

The 2026/27 position remains based on the 20% basic-rate tax reduction under Section 24 Landlord Tax Relief. From 6 April 2027, separate property Income Tax rates are due to apply in England, Wales and Northern Ireland: a property basic rate of 22%, a property higher rate of 42% and a property additional rate of 47%.

The government has also provided that residential finance-cost relief from April 2027 will be calculated at the property basic rate of 22%. This means Section 24 Landlord Tax Relief will move from a 20% reducer to a 22% property basic-rate reducer for 2027/28, although the exact tax result still depends on the wider statutory calculation and the landlord’s circumstances.

The increase in the reducer should not be viewed in isolation. The tax rates applying to property income also rise. A landlord who pays higher-rate tax on property income could therefore see a 42% property tax rate while receiving Section 24 Landlord Tax Relief finance-cost relief at 22%. The broad 20-percentage-point differential remains relevant.

This change makes year-specific forecasting even more important. A Section 24 Landlord Tax Relief calculation prepared for 2026/27 should not simply be copied into 2027/28. Landlords considering refinancing, rent changes, property purchases or disposals should model the correct tax year because both the applicable property rates and the finance-cost reducer can affect the result.

Final thoughts

Section 24 Landlord Tax Relief changed how individual residential landlords receive relief for qualifying mortgage interest. Instead of deducting interest directly from rental income, Section 24 Landlord Tax Relief generally provides a separate finance-cost tax reduction.

For 2026/27, Section 24 Landlord Tax Relief normally works at 20%, subject to statutory limits. From April 2027, Section 24 Landlord Tax Relief relief is set to use the new 22% property basic rate, while higher property rates also increase.

Landlords should separate mortgage interest from capital repayments, claim valid property expenses and track unused finance costs. Section 24 Landlord Tax Relief should also be reviewed alongside salary, other income, ownership and borrowing.

Before incorporating, transferring ownership or refinancing, consider the wider tax consequences. Section 24 Landlord Tax Relief can materially affect annual tax, but it is only one part of the overall property investment decision.

Tax rules and circumstances vary, so Section 24 Landlord Tax Relief calculations should be checked for the relevant tax year.

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