How Much Does Section 24 Cost Landlords? 2026 Worked Examples

Last updated 18 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team

The short answer

Section 24 stops landlords deducting mortgage interest from rental profit and replaces it with a flat 20% tax credit. For a higher-rate (40%) landlord, this costs an extra 20% of their mortgage interest in tax every year — roughly £1,800 on £9,000 of interest. Basic-rate landlords can also lose out, because rental income is now counted before interest and can push them into the higher-rate band. The worked examples below show exactly how. This article complements our full Section 24 mortgage interest guide.

A 30-second recap of how Section 24 works

Before April 2017, landlords deducted mortgage interest from their rental income like any other expense and paid tax on the profit. Section 24 ended that for individuals. Since the 2020/21 tax year:

Mortgage interest is no longer deducted from rental profit.
Instead, you receive a 20% basic-rate tax credit on the interest.
Your taxable rental income is higher, because it is calculated before interest.

For a basic-rate (20%) taxpayer whose income stays within the basic band, the credit roughly cancels out the lost deduction. For everyone with higher income, it costs real money — and that is what the examples show.

Example 1: Higher-rate landlord — the £1,800 hit

Sarah is a higher-rate taxpayer from her employment. Her single buy-to-let produces £20,000 of rent, with £9,000 of mortgage interest and £3,000 of other allowable expenses (letting fees, repairs, insurance).

Step	Pre-Section 24	Under Section 24 (now)
Rental income	£20,000	£20,000
Less other expenses	−£3,000	−£3,000
Less mortgage interest	−£9,000	Not deducted
Taxable profit	£8,000	£17,000
Tax at 40%	£3,200	£6,800
Less 20% interest credit	—	−£1,800
Tax due	£3,200	£5,000

Section 24 costs Sarah £1,800 a year in extra tax on exactly the same property and profit. The gap equals 20% of her £9,000 interest — the difference between her 40% marginal rate and the 20% credit. For an additional-rate (45%) landlord the gap would be 25%, costing £2,250 on the same interest.

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Example 2: The basic-rate landlord pushed into higher rate

James earns £40,000 from his job — comfortably a basic-rate taxpayer. He owns two buy-to-lets producing £18,000 of rent, with £8,000 of mortgage interest and £2,000 of other expenses. His real rental profit is £8,000.

Under the old rules his total taxable income would be £40,000 + £8,000 = £48,000 — still inside the basic-rate band (£50,270), all taxed at 20%. Under Section 24, however, his taxable rental income is counted before interest: £18,000 − £2,000 = £16,000. His total income becomes £40,000 + £16,000 = £56,000, pushing £5,730 of it into the 40% higher-rate band.

James now pays 40% on part of his income, receives only a 20% credit on his interest, and may also start to lose entitlements that are tested on total income. He never thought of himself as a higher-rate taxpayer — yet Section 24 has made him one on paper. This is the most damaging and least understood effect of the rules.

Knock-on effects beyond the headline tax

Because Section 24 inflates your total income figure, it can reach into other parts of your tax position:

High Income Child Benefit Charge — triggered as income rises above the threshold.
Personal allowance taper — the £12,570 allowance is reduced by £1 for every £2 of income over £100,000.
Loss of savings and dividend allowances at higher income levels.
Student loan repayments assessed on the higher income figure.

How to reduce the impact of Section 24

There is no way to opt out, but several legitimate strategies can soften the blow — each with trade-offs that need modelling for your situation:

Limited company ownership — companies still deduct interest in full, but transferring property triggers SDLT and CGT.
Transferring a share to a lower-earning spouse — shifting income to a basic-rate partner can reduce the overall rate.
Reducing gearing — paying down mortgage debt lowers the interest exposed to the restriction.
Maximising other allowable expenses — making sure every genuine cost (repairs, agent fees, insurance) is captured reduces taxable profit.

For the full strategy detail, read our complete Section 24 mortgage interest guide, and model your numbers with our landlord tax calculator.

Frequently asked questions

How much does Section 24 cost a higher-rate landlord?

For a higher-rate (40%) landlord, Section 24 typically costs an extra 20% of their mortgage interest in tax. This is because they no longer deduct interest at their 40% marginal rate but instead receive a 20% basic-rate tax credit — a 20-percentage-point difference. On £9,000 of mortgage interest, that is an additional £1,800 of tax per year compared with the pre-Section 24 rules. An additional-rate (45%) landlord loses 25 percentage points of relief, costing 25% of their interest.

Does Section 24 affect basic-rate taxpayers?

Often, yes — indirectly. Because rental income is now taxed gross of mortgage interest, your total taxable income is higher than your real profit. A landlord who looks like a basic-rate taxpayer on their actual profit can be pushed over the £50,270 higher-rate threshold by the grossed-up rental income, so part of their income is taxed at 40% even though, after interest, they barely made a profit. This is the hidden trap of Section 24.

How is the Section 24 tax credit calculated?

The tax reduction is 20% of the lowest of three figures: your finance costs (mortgage interest) not deducted, your property business profits for the year, and your adjusted total income above your personal allowance. For most landlords the binding figure is their mortgage interest, so the credit is simply 20% of the interest. If your property profits are low or you have no tax to reduce, the credit can be restricted and unused amounts may be carried forward.

Does Section 24 apply to limited companies?

No. Section 24 applies only to individuals and partnerships that hold property personally. Limited companies are not affected — a company still deducts mortgage interest in full as a business expense against its profits. This is the single biggest reason landlords with large, highly geared portfolios consider incorporating, although the costs of incorporation (SDLT, CGT, and ongoing admin) often outweigh the benefit for smaller portfolios.

When did Section 24 fully take effect?

Section 24 was phased in between April 2017 and April 2020. The restriction was tapered over those years, and from the 2020/21 tax year onwards it applies in full: no mortgage interest is deducted from rental profits, and relief is given entirely as a 20% basic-rate tax credit. The rules continue to apply in the 2026/27 tax year.

Can I avoid Section 24 by switching to a holiday let or company?

The furnished holiday lettings regime, which was exempt from Section 24, was abolished from April 2025 — so that route is closed. Holding property through a limited company avoids Section 24 because companies deduct interest in full, but transferring existing properties into a company triggers SDLT and potentially Capital Gains Tax, and brings extra running costs. Whether incorporation helps depends on your portfolio size, gearing, and how long you plan to hold. Always model the full cost before transferring.

LandlordTaxAi Editorial Team

The LandlordTaxAi editorial team writes about UK landlord tax, HMRC compliance, and Making Tax Digital. Our content is reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.

Last reviewed: 18 June 2026 · Figures use 2026/27 tax bands and are illustrative. This article is informational only and does not constitute tax advice. Consult a qualified accountant for advice on your specific circumstances.