Section 24: How Mortgage Interest Relief Really Works
You can't deduct mortgage interest — you get a 20% credit instead, with caps most explainers skip. Worked examples, the 40% taxpayer trap, and what the 2027 change does to the maths.
Section 24 is the most misunderstood rule in landlord taxation — routinely described as “you can’t claim mortgage interest any more”, which is both roughly true and precisely wrong. What actually happens: finance costs come out of your tax bill as a 20% credit, not out of your profit as an expense. The difference decides whether a mortgaged property makes sense at all for a higher-rate taxpayer.
The mechanics, correctly
- Compute rental profit with zero deduction for mortgage interest, arrangement fees or any finance cost.
- Tax that (inflated) profit at your marginal rates, stacked on your other income.
- Subtract a credit of 20% × the lowest of: your finance costs, your property profit, or your adjusted total income above the personal allowance. Unused finance costs carry forward.
That cap in step 3 is what the simplified explainers skip — a loss-making or low-profit year gives you less credit than 20% of your interest, with the balance carried forward, not lost.
Why the same mortgage costs a 40% taxpayer double
£10,000 rent, £8,000 interest, no other costs:
| Basic-rate landlord | Higher-rate landlord | |
|---|---|---|
| Taxable profit (interest ignored) | £10,000 | £10,000 |
| Tax at marginal rate | £2,000 | £4,000 |
| Credit: 20% × £8,000 | −£1,600 | −£1,600 |
| Tax on £2,000 of real profit | £400 (20%) | £2,400 (120%) |
Yes — an effective rate above 100% of real profit is possible: the higher-rate landlord here pays £2,400 tax on £2,000 of actual economics. This is also how Section 24 pushes people into higher bands: the gross profit counts toward your income, so it can taper your personal allowance and trigger the child-benefit charge even when little real profit exists.
The 2027 twist
From April 2027 the credit rises to 22%, tracking the new property basic rate — but property income will then be taxed at 22/42/47%. Net effect for the higher-rate example above: tax £4,200, credit £1,760 — £2,440. Marginally worse, not transformatively.
Who escapes Section 24
- Limited companies — full interest deduction, Corporation Tax rates; the reason incorporation dominates landlord forums (and why it's a real adviser question, given transfer CGT/SDLT and this April's dividend-rate rise on extraction).
- Cash buyers — nothing to restrict.
- Holiday lets no longer do — the FHL regime died in April 2025; full restriction applies.
ITTOIA 2005 s272A/s274A (finance-cost restriction & 20% reducer) · gov.uk Budget measures page for the 22% change from Apr-2027 · FHL abolition policy paper. Checked 29 Aug 2026.
Quick answers
Not as an expense — since April 2020 individuals get a 20% tax credit on finance costs instead (rising to 22% from April 2027). Basic-rate landlords usually end up in the same place; 40%/45% landlords get roughly half the old relief. Limited companies still deduct interest in full.
Mortgage interest (not capital repayments), loan arrangement and broker fees, and interest on loans taken to buy or improve the let property — including a remortgage of your own home where the funds went into the rental business. Keep the paper trail proving where borrowed money went.
Because Section 24 counts your GROSS profit (before interest) as income. £12,000 of rent with £10,000 of interest adds £12,000 to your income for band purposes — enough to tip people into 40%, taper the personal allowance over £100k, or trigger the child-benefit charge, while the credit only softens the bill afterwards.
Yes — the restriction and the credit are UK-wide. The difference is the rates the inflated profit is taxed at first: Scottish bands run 19–48%, while the credit stays at 20% — so the Section 24 squeeze is slightly sharper for Scotland's 42%+ payers.