Section 24 Mortgage Interest: The Landlord's Complete Guide
Section 24 of the Finance Act 2015 removed the ability for individual landlords to deduct mortgage interest as a property expense. Since 6 April 2020, landlords instead receive a 20% basic-rate tax credit on residential finance costs. Higher-rate taxpayers bear the greatest impact. The restriction does not apply to limited companies. HMRC's Property Income Manual PIM2052 sets out the full rules.
Section 24 mortgage interest: what the restriction means
Before April 2017, a landlord with a buy-to-let mortgage could deduct the full interest from their rental income before calculating their tax bill. A higher-rate taxpayer paid 40% tax on their profit after interest was removed. Mortgage interest effectively received 40% relief.
Section 24 changed that. The legislation, enacted in the Finance Act 2015 and phased in between 2017 and 2020, strips out mortgage interest from the expense deduction and replaces it with a flat 20% tax credit. The credit reduces your final tax bill — but it does not reduce your taxable income. That distinction matters enormously, as the worked examples below show.
The finance costs covered by Section 24 include:
- Mortgage interest on residential buy-to-let loans
- Loan arrangement fees spread over the mortgage term
- Interest on loans used to purchase furnishings
- Alternative finance returns (for Islamic mortgage products)
Capital repayments — the portion of your monthly mortgage payment that reduces your loan balance — have never been deductible and are unaffected by Section 24. HMRC PIM2052 confirms the full definition of deductible finance costs.
The restriction applies only to individual landlords letting residential property in their own name. Limited companies, partnerships where all partners are companies, and commercial property landlords are outside the scope of Section 24.
Before and after Section 24: the transition timeline
The restriction was phased in gradually over four tax years to ease the transition. Many landlords have now forgotten the phased period entirely — but understanding it explains why some older tax calculations look different to current ones.
| Tax year | Deductible as expense | 20% credit on remainder |
|---|---|---|
| Pre-2017/18 (old regime) | 100% | 0% |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 onwards (current) | 0% | 100% |
From 6 April 2020, the phased transition ended. Mortgage interest is now completely excluded from property expenses. The 20% tax credit on the full finance cost amount is the only relief available to individual residential landlords.
Section 24 worked examples: the real tax impact
The numbers below use a consistent set of figures across three scenarios so you can compare the impact directly. All amounts are illustrative.
Example A: Basic-rate taxpayer
Annual gross rental income: £18,000. Allowable expenses (letting agent fees, repairs, insurance): £5,000. Mortgage interest: £6,000. No other income (assumes full personal allowance available and total income keeps them in the basic rate band).
| Step | Old regime (pre-2017) | Current (Section 24) |
|---|---|---|
| Gross rental income | £18,000 | £18,000 |
| Less: allowable expenses | (£5,000) | (£5,000) |
| Less: mortgage interest (old) | (£6,000) | — |
| Taxable property profit | £7,000 | £13,000 |
| Income Tax at 20% | £1,400 | £2,600 |
| Less: 20% credit on £6,000 | — | (£1,200) |
| Tax payable | £1,400 | £1,400 |
For basic-rate taxpayers who remain in the basic rate band, the tax bill is the same under both regimes. The credit exactly offsets what the deduction would have given.
Example B: Higher-rate taxpayer — same figures
Same rental figures: £18,000 gross income, £5,000 allowable expenses, £6,000 mortgage interest. But this landlord has separate employment income that places them firmly in the 40% higher-rate band.
| Step | Old regime | Section 24 |
|---|---|---|
| Taxable property profit | £7,000 | £13,000 |
| Income Tax at 40% | £2,800 | £5,200 |
| Less: 20% credit on £6,000 | — | (£1,200) |
| Tax payable | £2,800 | £4,000 |
A higher-rate taxpayer pays £1,200 more tax per year on the same rental income. The 20% credit replaces what was previously 40% relief — a permanent reduction in the value of that relief by half.
Example C: The higher-rate trap — tax on a cash loss
This is the scenario that most surprises landlords. A landlord has gross rental income of £22,000, allowable expenses of £4,000, and mortgage interest of £20,000. Their cash position after expenses and mortgage payments is a loss of £2,000. Employment income keeps them in the 40% band.
| Step | Amount |
|---|---|
| Gross rental income | £22,000 |
| Less: allowable expenses | (£4,000) |
| Taxable profit (mortgage NOT deducted) | £18,000 |
| Income Tax at 40% on £18,000 | £7,200 |
| Less: 20% credit on £20,000 mortgage interest | (£4,000) |
| Tax payable | £3,200 |
| Cash position (rent minus expenses minus mortgage) | -£2,000 |
This landlord loses £2,000 in cash terms from the property, yet owes £3,200 in Income Tax on it. The total cash impact is a £5,200 deficit. This is the Section 24 trap for highly leveraged higher-rate taxpayers.
To model your own figures, use our landlord tax calculator — it applies the Section 24 credit automatically and shows your before-and-after tax position.
Calculate your Section 24 impact
Enter your rental income, mortgage interest, and tax band. Get your exact before-and-after Section 24 tax position in seconds.
Open the landlord tax calculatorHow to record Section 24 correctly in SA105
One of the most common errors landlords make — and one that HMRC does query — is recording mortgage interest as an allowable expense on their SA105 property pages. It is not. Since 2020/21, mortgage interest belongs in a separate box, and HMRC calculates the credit from there.
The correct box on the SA105 UK Property supplementary pages is:
Box 44 — Residential finance costs
Enter the total mortgage interest and other qualifying finance costs for the year here. Do not include capital repayments. Do not include costs for commercial property or furnished holiday lets (which have separate treatment). HMRC uses this figure to calculate your 20% tax credit automatically.
If you have carried forward unused finance costs from a previous year — for example, because your tax credit exceeded your tax liability in that year — these go in Box 45.
Common errors to avoid
- Entering mortgage interest in “Other expenses” (Box 20). This reduces your taxable profit but denies you the credit calculation. HMRC may raise an enquiry if the figures do not match your mortgage statement.
- Including capital repayments in Box 44. Only the interest portion of your mortgage payment belongs here. Check your annual mortgage statement for the interest-only breakdown.
- Omitting mortgage arrangement fees. Arrangement fees are finance costs. If you paid them upfront, they can be included in Box 44 in full in the year paid (or spread across the mortgage term if you prefer consistency).
Section 24 and MTD quarterly submissions
From 6 April 2026, landlords above the £50,000 qualifying income threshold must submit quarterly income and expense summaries to HMRC through MTD-compatible software. Section 24 adds a layer of complexity to this process because mortgage interest must be recorded separately from allowable expenses throughout the year.
During the quarterly submission period, you report income and allowable expenses in each update. Mortgage interest is not included in these quarterly submissions as a deductible item — instead, your total residential finance costs for the year are declared at the End of Period Statement (EOPS) stage. The 20% credit is then applied in your Final Declaration.
The practical implication: you must maintain a running total of your mortgage interest payments throughout the year in a separate category in your records, even if it does not flow through as a quarterly expense. Mixing it with regular expenses means your year-end position will be wrong.
Good MTD software handles this automatically when transactions are categorised correctly. LandlordTaxAi maps mortgage payments to the residential finance costs category by default, keeping them separate from allowable expenses in line with SA105 Box 44 requirements.
Generic accounting software such as Xero and QuickBooks is not designed around SA105 property categories. You or your accountant will need to set up a custom chart of accounts to separate finance costs from expenses — and ensure that chart maps correctly to your MTD submissions. This is a frequent source of miscategorisation for landlords using general-purpose tools. Our comparison of the best MTD software for landlords covers this in detail.
For a full explanation of quarterly deadlines, the EOPS, and the Final Declaration process, read our MTD for landlords guide. HMRC's eligibility guidance confirms which landlords must comply from 6 April 2026.
Does Section 24 apply to limited companies?
No. Section 24 does not apply to limited companies. A company that holds residential property pays Corporation Tax on its profits. Mortgage interest is fully deductible as a business expense in computing the company's taxable profit — there is no equivalent finance cost restriction in Corporation Tax law.
This is the primary reason many higher-rate landlords have considered incorporating their portfolios since 2017. Inside a company, the tax treatment of mortgage interest reverts to the pre-Section 24 position: it is an expense that reduces profit before tax is calculated.
However, incorporating a personal property portfolio is not straightforward. The main considerations are:
- Stamp Duty Land Tax (SDLT). Transferring properties from personal ownership to a company is treated as a sale at market value. SDLT applies at the higher rates for additional dwellings (3% surcharge), which can be a large upfront cost.
- Capital Gains Tax (CGT). The transfer triggers CGT on any gain since acquisition, even if no cash changes hands. Incorporation Relief may apply if conditions are met, but this is complex.
- Mortgage refinancing. Most buy-to-let lenders will not transfer an existing personal mortgage to a company. Refinancing into a company buy-to-let mortgage typically means higher interest rates and arrangement fees.
- Extracting profits. Company profits are taxed at Corporation Tax rates (currently 25% for profits above £50,000 as of April 2026). Drawing profits out as salary or dividends incurs further personal tax, which erodes the Corporation Tax advantage.
This article is informational only. Whether incorporation makes financial sense for your specific situation depends on your mortgage terms, the size of your portfolio, your personal income, and your long-term plans. Consult a qualified accountant or tax adviser before making any decision.
What landlords can do to manage Section 24
Section 24 is permanent legislation as of April 2026. There is no workaround for individual landlords who continue to hold property personally. However, there are steps you can take to manage its impact.
Review your mortgage rates
The lower your mortgage interest, the smaller your Section 24 impact. Remortgaging to a better rate — within the constraints of your lender's criteria — directly reduces the finance cost that feeds into the calculation. A 0.5% reduction on a £200,000 buy-to-let mortgage saves £1,000 interest per year, which translates to a £200 reduction in your Section 24 tax bill (20% of £1,000).
Maximise allowable expenses
Allowable expenses still reduce your taxable rental profit directly. Repairs (not improvements), letting agent fees, landlord insurance, accountancy fees, ground rent, and service charges are all deductible in the normal way. Keeping thorough records throughout the year — particularly for repairs — ensures you claim everything you are entitled to.
Consider the timing of sales
Some heavily leveraged landlords who are cash-negative under Section 24 have concluded that selling properties is the right commercial decision. If you are paying tax on a cash loss, the economics of continuing to hold may not stack up. This is a significant financial decision that should be modelled carefully, ideally with an accountant.
Consider portfolio planning over time
For landlords with a long time horizon, gradually reducing leverage (paying down mortgage capital) reduces the finance costs on which Section 24 bites. A mortgage that is 40% paid down produces proportionally less interest, lowering both the cash outflow and the Section 24 exposure. This is a slow strategy but one that improves cash flow and tax position simultaneously.
Frequently asked questions
What is Section 24 of the Finance Act 2015?
Section 24 of the Finance Act 2015 removed the right for individual landlords to deduct mortgage interest as a property expense. Instead, landlords receive a 20% basic-rate tax credit calculated on their finance costs. The restriction applied in full from the 2020/21 tax year onwards.
How much tax credit does Section 24 give landlords?
Section 24 gives landlords a tax credit worth 20% of their total residential finance costs — typically mortgage interest and arrangement fees. The credit is set at the basic rate of Income Tax (20%) regardless of whether you are a higher or additional-rate taxpayer. Higher-rate taxpayers therefore lose out compared to the pre-2017 regime.
Does Section 24 apply to limited company landlords?
No. Section 24 only applies to individual landlords who hold residential property in their own name and file a Self Assessment return. Limited companies pay Corporation Tax, not Income Tax, and are not subject to the finance cost restriction. Mortgage interest remains fully deductible as a business expense within a company.
Does Section 24 apply to commercial property?
No. The finance cost restriction introduced by Section 24 applies only to residential property let by individuals. Commercial property landlords — and furnished holiday let landlords, though FHL rules have changed from April 2025 — are outside the scope of Section 24 and may continue deducting finance costs in the usual way.
How do I record mortgage interest correctly in an MTD quarterly submission?
Mortgage interest must be recorded as a finance cost, not as an allowable expense. In SA105 terms, it belongs in Box 44 (residential finance costs). In an MTD quarterly submission, it must be categorised separately from expenses so your software can apply the 20% credit calculation correctly at year end. Putting it under general expenses is a common error that HMRC may query.
Is the Section 24 finance cost restriction permanent?
As of April 2026, Section 24 is permanent legislation with no announced reversal. Several landlord groups have called for its reform, but successive governments have retained it. Landlords should plan their tax affairs on the assumption that the restriction will remain in place indefinitely.
What is the difference between Section 24 and the Wear and Tear Allowance?
These are two separate abolished reliefs. The Wear and Tear Allowance — which let furnished property landlords deduct 10% of net rents for furnishings — was abolished from April 2016 and replaced by the Replacement of Domestic Items Relief. Section 24 is a different restriction, removing full mortgage interest deductibility from April 2017 onwards.
How do I calculate my Section 24 tax credit?
Add up all your residential finance costs for the tax year (mortgage interest, loan arrangement fees, etc.). Multiply the total by 20%. That figure is your tax credit. It reduces your Income Tax liability — but it does not reduce your taxable income, so it does not affect which tax band you fall into.
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 legislation changes. We are operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 19 April 2026 · This article is informational only and does not constitute tax advice. Consult a qualified accountant for advice specific to your circumstances.