Since 6 April 2020 an individual letting residential property has had no deduction at all for mortgage interest. You are taxed on rent gross of the interest and given a basic rate tax reducer instead. That is why higher-rate landlords pay more tax on profits that have not moved, and why some are taxed on money they never see.
Guide · Updated September 2026
Finance costs used to be an ordinary deduction from rental profit. They are not any more. For an individual carrying on a residential property business, the deduction was phased out from 6 April 2017 and has been withdrawn in full since 6 April 2020. In its place you get a basic rate tax reducer, applied at Step 6 of the income tax calculation.
The statutory home of the restriction is ITTOIA 2005 sections 272A and 272B, with ITA 2007 sections 399A and 399B dealing with partnerships. It applies to individuals, to trustees of accumulating or discretionary trusts, and to personal representatives.
The mechanical consequence is easy to state and easy to underestimate. Your taxable property profit is now calculated before any interest. That profit feeds into your total income. Only after the whole income tax calculation has been done do you get a reduction worth basic rate on the interest. A higher-rate taxpayer is therefore charged 40% on money that went to the lender and given 20% back.
The reducer is 20% of the lowest of three figures:
Two consequences follow from the "lowest of" test. Where property profits are small or nil, the reducer is small or nil however much interest you paid — which is exactly the position a heavily geared landlord is in. And the tax reduction cannot be used to create a tax refund. Where relief is restricted by one of the three limbs, the unrelieved finance costs are carried forward to a later year, where they join the first limb of the same test.
A landlord has £48,000 of rent, £9,000 of running costs and £14,000 of mortgage interest, plus a £30,000 salary. Figures are illustrative and use 2026/27 thresholds — a personal allowance of £12,570 and a basic rate band of £37,700.
Taxable property profit is £48,000 less £9,000 = £39,000. The interest is not deducted. Total income is £39,000 + £30,000 = £69,000. Taking off the personal allowance leaves £56,430 of taxable income: £37,700 at 20% is £7,540, and the remaining £18,730 at 40% is £7,492 — £15,032 before the reducer.
The reducer is 20% of the lowest of £14,000 of finance costs, £39,000 of property profits, and £56,430 of adjusted total income above the personal allowance. The lowest is £14,000, so the reducer is £2,800 and the tax due is £15,032 − £2,800 = £12,232.
Under the old deduction the property profit would have been £25,000, total income £55,000, taxable income £42,430, and the tax £7,540 + £1,892 = £9,432. The restriction costs this landlord £2,800 — the 20 percentage point gap between the 40% charged and the 20% given back, on £14,000 of interest.
Our Section 24 calculator runs the same three-way test on your own figures, including the threshold effects below.
The extra 20 points on the interest is the visible cost. The invisible one is what taxing rent gross does to your total income, because a lot of the tax system keys off that number rather than off what you actually keep.
The uncomfortable version of this is that a landlord can be taxed on more than they earn. Where interest is large relative to profit — a highly geared portfolio in a period of higher rates — the income tax charged on gross rent, less a reducer capped by small property profits, can exceed the cash the properties actually produced. That is not a loophole or a misunderstanding. It is what the mechanism does.
Four categories sit outside it, and one of them changed recently.
From 6 April 2027, property income gets its own income tax rates, announced at Budget 2025 and legislated in the Finance Act 2026. For England, Wales and Northern Ireland the property rates become 22%, 42% and 47%, against 20%, 40% and 45% on earned income. The stated rationale is that property, savings and dividend income bear no National Insurance, so the rates are raised to narrow the gap.
The Section 24 mechanism does not change — the reducer is still given at Step 6 — but it is given at the new property basic rate of 22% rather than 20%. That is an offset, not a rescue, and the arithmetic makes the scale obvious:
Since taxable property profit is calculated gross of interest, it is almost always the larger of the two numbers, so most geared landlords will pay more overall. On the illustrative example above, the reducer on £14,000 of interest would rise from £2,800 to £3,080 — while £39,000 of property profit picks up two extra percentage points on every pound of it that falls above the basic rate band.
The April 2027 property income rates cover England, Wales and Northern Ireland. In Wales they apply through the Welsh rates of income tax: under the Finance Act 2026 a Welsh taxpayer's property income is taxed at the UK property rate, less 10 percentage points, plus the Welsh rate the Senedd sets, which with the Welsh rates where they are for 2026/27 gives the same 22%, 42% and 47%. A Scottish taxpayer's property income stays on the Scottish rates of income tax. The Act will also let the Scottish Parliament and the Senedd set their own property income rates, from a date the Treasury has not yet appointed.
There is no election out of Section 24 and no structure that makes it disappear without consequences elsewhere. What is available is narrower and less exciting:
We prepare the property pages so the reducer is worked out on the correct three-way test, track unrelieved finance costs forward year to year, and show you where the threshold effects land before they land. Where incorporation is worth modelling we model it with the transfer costs in, not left out. See landlord tax returns, or book a free review.
What has changed in landlord tax, the dates coming up, and one number worth checking on your own portfolio.
Section 24 is the shorthand for the finance cost restriction that removed mortgage interest as a deductible expense for individual landlords of residential property. It was phased in from 6 April 2017 and has been fully in force since 6 April 2020, so yes, it still applies and there is no transition left to run. The statutory basis is sections 272A and 272B of ITTOIA 2005, with sections 399A and 399B of ITA 2007 covering partnerships. Instead of a deduction you receive a basic rate tax reducer at Step 6 of the income tax calculation. It catches individuals, trustees of accumulating and discretionary trusts, and personal representatives.
It is 20% of the lowest of three figures: the finance costs you were not allowed to deduct this year plus any carried forward from earlier years, your property business profits for the year, and your adjusted total income exceeding the personal allowance. Because it takes the lowest, a landlord whose property profits are small gets a small reducer no matter how much interest was actually paid. The reduction cannot be used to create a tax refund, so it can never take your liability below nil. Where relief is restricted by one of the three limbs, the unrelieved finance costs carry forward and join the first limb in a later year.
Because your taxable property profit is now worked out before any mortgage interest, and that larger figure feeds into your total income. A higher-rate taxpayer is charged 40% on rent that went straight to the lender and given only 20% back through the reducer, so on £10,000 of interest the net cost is £2,000. The knock-on effects are often larger than that. Gross rent can push you over the higher rate threshold, which on 2026/27 figures starts at £50,270; past £100,000, where the personal allowance begins to be withdrawn; or over the High Income Child Benefit Charge threshold, all on income you never kept.
No. HMRC's Property Income Manual at PIM2054 states that companies carrying on property business are not affected by the restriction, so a company deducts its mortgage interest in full against property profits. Loans wholly for commercial property are outside the restriction too, whoever borrows, as are residential mobile home parks, which HMRC treats as a trade. Furnished holiday lettings were outside it only up to 5 April 2025: the abolition of the FHL regime by Schedule 5 to the Finance Act 2025 brought them inside. None of this makes incorporating the answer, because the transfer itself carries capital gains tax and stamp duty on market value.
Property income gets its own income tax rates of 22%, 42% and 47% in England, Wales and Northern Ireland, against 20%, 40% and 45% on earned income. It was announced at Budget 2025 and legislated in the Finance Act 2026. The Section 24 mechanism is unchanged, but the reducer is then given at the new property basic rate of 22% rather than 20%. The offset is much smaller than the rate rise for most geared landlords: every £1,000 of finance costs produces £220 of relief instead of £200, while every £1,000 of property profit taxed at the higher rate costs £420 instead of £400. Welsh taxpayers are covered through the Welsh rates of income tax; Scottish taxpayers' property income stays on the Scottish rates.
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