Section 24 tax explained: what UK landlords actually pay in 2026
One-line answer. Section 24 of the Finance (No. 2) Act 2015 stops UK individual landlords from deducting mortgage interest as a business expense. Instead, you get a flat 20% tax credit on the interest. If you pay tax above 20%, your bill goes up — sometimes a lot. Section 24 only applies to individuals letting residential UK property, not to limited companies and not to furnished holiday lets that still qualified before April 2025.
This page walks through how it actually hits your tax return, with three worked examples (basic rate, higher rate, and the trap where Section 24 pushes a basic-rate landlord into higher rate). It uses 2025/26 thresholds.
What Section 24 actually changed
Before April 2017, landlords subtracted mortgage interest from rental income, paid tax on the difference. Simple. Section 24 phased that out over four years; from 2020/21 onwards the full restriction has been in force.
Now:
- Calculate property profit without subtracting any finance costs (mortgage interest, mortgage arrangement fees, interest on improvement loans).
- Add that profit to your other income. This sets your tax band.
- Calculate income tax as normal.
- Reduce the resulting tax bill by 20% of your finance costs.
The reduction is a tax reducer, not a deduction. That’s the entire trick — and it’s why higher-rate landlords pay more than basic-rate landlords on identical numbers.
Worked example 1 — basic-rate landlord (no change)
Inputs
- Rental income: £14,400
- Allowable expenses (repairs, agent fees, insurance, etc.): £2,400
- Mortgage interest: £6,000
- Other employment income: £18,000
- Personal allowance 2025/26: £12,570
Old rules (pre-2017)
- Property profit: 14,400 − 2,400 − 6,000 = £6,000
- Total taxable income: 18,000 + 6,000 − 12,570 = £11,430
- Tax: 11,430 × 20% = £2,286
Section 24 (current)
- Property profit: 14,400 − 2,400 = £12,000
- Total taxable income: 18,000 + 12,000 − 12,570 = £17,430
- Tax: 17,430 × 20% = £3,486
- Tax reducer: 6,000 × 20% = £1,200
- Tax due: 3,486 − 1,200 = £2,286
Same answer. Basic-rate landlords are unaffected on the maths.
Worked example 2 — higher-rate landlord (this is where it bites)
Same property, but the landlord earns £62,000 in their day job.
Old rules
- Property profit: £6,000
- Top-slice taxed at 40%: 6,000 × 40% = £2,400 extra tax
Section 24
- Property profit (no interest deduction): £12,000
- Top-slice taxed at 40%: 12,000 × 40% = £4,800
- Tax reducer: 6,000 × 20% = £1,200
- Extra tax: 4,800 − 1,200 = £3,600
Section 24 cost this landlord £1,200 more tax on identical real-world cash flow. Cash position got worse, the tax bill got bigger.
Worked example 3 — the basic-to-higher-rate trap
A landlord earning £40,000 in their day job, with the same property as above.
Pre-Section 24 their property profit was £6,000. Total income £46,000 — comfortably basic rate (the 2025/26 higher-rate threshold is £50,270).
Under Section 24 their property “profit” is £12,000. Total income £52,000. The top £1,730 of property income is now in the 40% band. The 20% credit applies to the full £6,000 of interest, but the extra tax sits at 40%.
Net effect: ~£346 of extra tax purely because Section 24 inflates phantom income that didn’t exist in cash.
This trap catches accidental landlords every January. If you’re within £10,000 of the higher-rate threshold and have a mortgage, run the numbers.
What counts as a “finance cost” (the 20%-credit pile)
- Mortgage interest on the property
- Interest on a loan used to buy the property (even if not secured against it)
- Interest on a loan used to make improvements
- Mortgage arrangement / product fees and broker fees
- Interest on overdrafts used for the rental business
- Discounts and premiums on related loans
What is not a finance cost (these stay deductible as normal):
- Capital repayments on the mortgage (never deductible — that’s just paying down debt)
- Letting agent fees, accountant fees, repairs, insurance, council tax during void
Who Section 24 applies to (and who escapes)
| Structure | Section 24 applies? |
|---|---|
| Sole-trader landlord (named on title deeds) | Yes |
| Joint owners (married, civil partners, friends) | Yes — apportioned per share |
| Limited company / SPV | No — interest is a business expense |
| Furnished Holiday Let pre-April 2025 | No (until FHL regime abolished) |
| Furnished Holiday Let post-April 2025 | Yes — FHL regime abolished from 6 April 2025 |
| Commercial property let | No |
| Property held in a trust | Depends on trust type — get advice |
The “loophole” people search for (“section 24 tax loophole uk”) is the limited-company structure. Putting an existing portfolio into a company triggers Capital Gains Tax and Stamp Duty Land Tax (with the 5% surcharge for additional dwellings). For a small portfolio bought in the last 10 years, the SDLT alone usually wipes out 5+ years of Section 24 savings. There’s no free escape. Run the numbers with an accountant before you incorporate.
How to actually calculate your Section 24 hit (5-step recipe)
- Gross rents received in the tax year (6 April → 5 April).
- Subtract allowable expenses (everything except mortgage interest). This is your taxable property profit.
- Add that profit to your salary, pension, dividends, etc. → total taxable income.
- Calculate income tax the normal way using the 2025/26 bands.
- Subtract 20% × total finance costs from the tax bill.
If the 20% credit exceeds your total tax bill, the unused portion carries forward to next year. (This matters if you make a property loss — keep records.)
Section 24 on the SA105 tax return
On the SA105 supplementary page:
- Box 26 — Loan interest and other financial costs (the figure used for the 20% reducer)
- Box 44 — Residential property finance costs brought forward from earlier years
The reducer is calculated and applied at the main return level (SA100), not the SA105 itself. Most online tax software, including LetLedger, surfaces the box 26 figure for you and explains the resulting reducer.
Common mistakes that trigger HMRC enquiries
- Deducting interest in box 27 (“legal, management and other professional fees”) instead of box 26. HMRC’s automated checks flag this.
- Including capital repayments in box 26. Only the interest portion is a finance cost.
- Forgetting to add back interest when calculating property profit, then claiming the 20% credit on top. Double-counting.
- Claiming finance costs on a property held in a company. Wrong return — that goes through CT600.
- Joint ownership errors. A 50/50 joint property with a 100k mortgage means each owner declares 50k of interest, not 100k.
How LetLedger handles Section 24
LetLedger categorises every transaction in your bank statement into the SA105 boxes. Mortgage interest payments are tagged loan_interest_residential and pulled into box 26 automatically. The year-end PDF flags the figure as subject to the 20% restriction and shows the resulting reducer estimate, so you can sanity-check it against the figure your accountant or HMRC’s software produces.
Try LetLedger free for the 2025/26 tax year →
FAQ
Does Section 24 apply to me as a basic-rate taxpayer? On the maths, no — basic-rate landlords get the same answer either way. But if rental profit pushes your total income over £50,270, the slice over the threshold is taxed at 40% while you only get a 20% credit. Run the numbers.
Can I deduct mortgage capital repayments? No. Capital repayments are never deductible — that’s just paying down debt. Only the interest counts.
Do limited companies escape Section 24? Yes. Companies deduct interest as a normal business expense. But moving an existing portfolio into a company triggers CGT and SDLT, which usually outweighs the savings on a small portfolio.
Does Section 24 apply to furnished holiday lets? Not before April 2025. From 6 April 2025 the FHL regime was abolished, so previously-FHL properties are now under Section 24 like any other residential let.
What if my mortgage interest is bigger than my profit? You make a property loss and carry the unused 20% credit forward. Keep records — HMRC will want to see the brought-forward figure.
Does Section 24 apply to commercial property? No. Commercial lets keep full interest deductibility.
Where do I put mortgage interest on SA105? Box 26 (residential finance costs). Box 44 is for unused finance costs brought forward from prior years.
Is there a Section 24 loophole? Not really. Incorporating a portfolio is the most-discussed route, but the CGT and SDLT entry costs usually outweigh the long-term saving for small landlords. Get specific advice before you act on anything claiming to “avoid” Section 24.
This article is for guidance only. It is not personal tax advice. Tax rules change. Always verify the current position with HMRC or a qualified accountant before filing.