Section 24 has significantly changed the tax landscape for UK landlords, affecting profitability and investment strategies. In short, it stops individual landlords deducting mortgage interest and other finance costs from their rental income, and gives them a tax reduction at the basic rate instead. In this guide, we'll explain how the rules work for landlords in 2026, what changes again from April 2027, and the alternative strategies landlords consider.
In this blog
- What is Section 24?
- When was Section 24 introduced?
- How Section 24 affects landlords
- How it works now under Section 24
- What changes from April 2027?
- Alternative routes for landlords
- FAQs
| Section 24 at a glance | Key facts |
|---|---|
| What it is | A restriction on Income Tax relief for finance costs on residential lettings, introduced by section 24 of the Finance (No. 2) Act 2015 |
| Who it affects | Individual landlords, including those letting in partnership, and trustees, who let residential property |
| Who it does not affect | Companies, and loans used wholly for commercial property |
| Relief in 2026/27 | No deduction from rental profits; instead a tax reduction worth 20% of finance costs (subject to limits) |
| From 6 April 2027 | Property income taxed at 22%, 42% or 47%, with finance cost relief given at 22% (Finance Act 2026) |
| Former holiday lets | The furnished holiday lettings regime ended on 6 April 2025, so these properties now fall under the same restriction |
Source: HMRC Property Income Manual, Finance Act 2026, section 7, GOV.UK.
What Is Section 24?
Section 24 of the Finance (No. 2) Act 2015 brought important changes to the taxation of UK landlords' rental income, particularly regarding how mortgage interest tax relief is calculated. It inserted new rules into the Income Tax (Trading and Other Income) Act 2005 that stop individual landlords deducting residential finance costs from their rental income, replacing that deduction with a tax reduction at the basic rate.
The landlords who lose most are higher-rate and additional-rate taxpayers with large mortgages, because they used to get relief at 40% or 45% and now get it at 20%. Many landlords have responded by reviewing their portfolios, their borrowing and how they own their properties.
When Was Section 24 Introduced?
Section 24 was introduced as part of the UK government's efforts to reform the taxation of landlords. The legislation was first announced in the Summer Budget of July 2015 by then-Chancellor George Osborne. This announcement marked a significant shift in the government's approach to taxing rental income.
The Phased Implementation
The changes brought about by Section 24 were not immediate. Instead, the government opted for a phased implementation to allow landlords time to adjust to the new tax rules. The changes were gradually introduced over four years, starting from the 2017/18 tax year and culminating in the full impact being felt from the 2020/21 tax year onwards.
- 2017/18 Tax Year: 25% of mortgage interest payments were subject to the new tax rules, with the remaining 75% still deductible under the old system.
- 2018/19 Tax Year: 50% of mortgage interest payments were treated under the new system.
- 2019/20 Tax Year: The proportion increased to 75%.
- 2020/21 Tax Year and Beyond: 100% of mortgage interest payments were fully subject to the new tax rules.
The Rationale Behind Section 24
HMRC's stated policy objective was to make the tax system fairer by ensuring that landlords with higher incomes no longer received the most generous tax treatment on their borrowing. Many in the industry also saw it as a way to cool the buy-to-let market and help first-time buyers compete. HMRC's own impact assessment at the time did not expect a significant effect on house prices or rent levels, and estimated that around 1 in 5 individual landlords would receive less relief.
How Section 24 Affects Landlords
The legislation limits relief for mortgage interest and other finance costs to a tax reduction at the basic rate (20% in 2026/27), replacing the previous system where landlords could deduct mortgage interest at their full tax rate. This shift has led to several key impacts:
Key Impacts on Landlords
- Increased Tax Bills: Higher-rate taxpayers who previously claimed 40% or 45% tax relief now only receive 20%, resulting in much higher tax liabilities.
- Higher Taxable Income: Because interest is no longer deducted, your rental profit on paper is higher. That can push some landlords from the basic rate into the higher rate, and can affect things that depend on income, such as the High Income Child Benefit Charge.
- Profitability Challenges: Landlords with significant mortgage debt face reduced profit margins, with some experiencing negative cash flow.
- Rent Increases: To offset the increased tax burden, some landlords have raised rents.
- Strategic Shifts: In response to these changes, some landlords have bought through limited companies or moved into commercial property, where different tax rules apply.
Section 24 changed the numbers for many landlords. Our landlord services team can talk through what it means for a portfolio of your size.
Common Confusions About Section 24
A major source of confusion with Section 24 is that relief is capped at the basic rate, regardless of a landlord's tax band. Previously, higher-rate taxpayers could claim relief at their full tax rate, making this a significant change. A few other points regularly catch landlords out:
- It is not only mortgage interest. The restriction covers finance costs generally, including interest on loans to buy furnishings and fees for taking out or repaying a mortgage or loan. Capital repayments have never been deductible.
- It is a tax reduction, not an expense. The reduction is worked out on the lowest of your finance costs, your property profits, or your non-savings income above the personal allowance. It cannot create a tax refund, but unused finance costs can be carried forward to later years.
- It is not Section 21. Section 24 is a tax rule. It is often confused with Section 21 “no-fault” eviction notices, a completely different law that was abolished in England on 1 May 2026. Our guide to the Renters' Rights Act for landlords in Berkshire and Wiltshire covers that change.
Response from Landlords
Section 24 has provoked strong reactions from UK landlords, many of whom feel unfairly targeted by the legislation. The changes have reduced profitability, leading some landlords to sell properties or raise rents to cover the increased tax burden.
Landlord Opposition
Landlord representative bodies have campaigned against Section 24 for years, arguing that it discourages investment and worsens the housing shortage. Despite this, the restriction remains in place, and the Finance Act 2026 has kept it in a revised form from April 2027.
Impact on Tenants and Market Adjustments
To cope with higher tax bills, some landlords have increased rents, adding pressure to an already strained rental market. Others have restructured their investments, for example buying new properties through limited companies, which are outside the Section 24 restriction.
How Landlord Tax Worked Under the Old System
Before the implementation of Section 24, UK landlords enjoyed a tax environment that allowed them to fully deduct mortgage interest payments from their rental income. This meant that if a landlord earned £20,000 in rent and paid £10,000 in mortgage interest, only the remaining £10,000 would be subject to tax, significantly reducing their overall tax liability.
For higher-rate taxpayers, this system was especially beneficial. They could deduct the mortgage interest at their full marginal rate of 40% or 45%, which made property investments much more profitable. This tax relief played a crucial role in encouraging investment in buy-to-let properties, as landlords could confidently leverage borrowed funds, knowing that interest payments would substantially reduce their taxable income.
How It Works Now Under Section 24
Under Section 24, landlords can no longer deduct mortgage interest directly from their rental income. Instead, they receive a tax reduction worth 20% of their finance costs, regardless of their tax bracket.
For instance, if a landlord pays £10,000 in mortgage interest:
- They receive a £2,000 tax reduction (20% of £10,000), provided their property profits and other taxable income are high enough to use it.
- They can no longer deduct the full £10,000 from their taxable income.
This shift results in higher tax bills, particularly for those in higher tax bands, and reduced cash flow for landlords with significant mortgage debts. Basic-rate taxpayers whose income stays within the basic rate band usually pay much the same as before, because they were only getting 20% relief anyway. HMRC's worked examples on GOV.UK show how the calculation works, including carrying unused finance costs forward.
What Changes From April 2027?
The Finance Act 2026, which received Royal Assent on 18 March 2026, creates separate Income Tax rates for property income. From 6 April 2027, for the 2027/28 tax year:
- Property basic rate: 22% (up from 20%)
- Property higher rate: 42% (up from 40%)
- Property additional rate: 47% (up from 45%)
- Finance cost relief: the Section 24 tax reduction will be given at the property basic rate of 22%, rather than 20%
Property income will also be taxed after employment, self-employment and pension income, but before savings and dividends. The personal allowance (£12,570) and basic rate band (£37,700) are frozen at current levels up to and including 2030/31. The rates above apply in England and Northern Ireland. The Act gives the Scottish Parliament and the Senedd the power to set property rates for Scottish and Welsh taxpayers. Companies pay Corporation Tax, so these Income Tax rates do not apply to them.
In practice, the higher finance cost relief offsets part of the rise, so the extra 2% effectively falls on rental profit after all expenses including interest.
Worked Example: Section 24 Before and After April 2027
The figures below are hypothetical and for illustration only. Both landlords own one buy-to-let in England with rent of £20,000 a year, mortgage interest of £8,000 and other allowable expenses (agent fees, insurance, repairs) of £2,000. Landlord A earns a £25,000 salary; Landlord B earns a £60,000 salary. The table shows the Income Tax due on the rental income only.
| Hypothetical example | Landlord A (basic rate) | Landlord B (higher rate) |
|---|---|---|
| Old rules (interest fully deducted, taxable profit £10,000 at 20% or 40%) | £2,000 | £4,000 |
| Section 24 in 2026/27 (taxable profit £18,000 at 20% or 40%, less 20% of £8,000 = £1,600) | £3,600 − £1,600 = £2,000 | £7,200 − £1,600 = £5,600 |
| Section 24 from 2027/28 (taxable profit £18,000 at 22% or 42%, less 22% of £8,000 = £1,760) | £3,960 − £1,760 = £2,200 | £7,560 − £1,760 = £5,800 |
| Extra tax compared with the old rules | £0 in 2026/27, £200 from 2027/28 | £1,600 in 2026/27, £1,800 from 2027/28 |
Source: rates from GOV.UK Income Tax rates and HMRC technical note. Assumes the standard personal allowance, no other property, savings or dividend income, and ignores National Insurance, student loans and other charges. Not tax advice: your own figures will differ.
Alternative Routes for Landlords
In response to Section 24, many landlords have explored alternative strategies to maintain profitability and manage tax liabilities. We cover wider ways to reduce your tax bill, such as allowable expenses and allowances, in our guide on how to reduce tax on rental income legally. Every option below has costs and risks, so speak to a qualified accountant or tax adviser before acting.
Partner Routes
Some landlords transfer property ownership or split rental income with a spouse or civil partner in a lower tax bracket, reducing the overall tax burden. If you live with your spouse or civil partner and jointly own a property, HMRC normally taxes the income 50:50. To be taxed on unequal shares, you must actually own it in those shares and tell HMRC using Form 17. This strategy requires careful planning, and our guide to tenants in common vs joint tenants explains the ownership options.
Limited Companies
Buying or holding properties through a limited company is another popular option. Companies are not affected by Section 24: they pay Corporation Tax and get relief for interest under the corporate rules. However, this approach involves additional costs and complexities. Moving properties you already own into a company you control is treated as a transfer at market value, which can trigger Capital Gains Tax and Stamp Duty Land Tax, and usually means refinancing onto a company buy-to-let mortgage. Our mortgage advice service can help you compare options, alongside advice from your accountant.
Holiday Lets
Holiday lets used to be a common way around Section 24, because furnished holiday lettings had their own tax regime. That regime was abolished from 6 April 2025 for Income Tax, and loan interest on former holiday lets is now restricted to the basic rate in the same way. They no longer offer a Section 24 advantage and still bring heavier management and seasonal income.
Budget 2025 and Finance Act 2026 Updates
The November 2025 Budget announced the new property income rates covered in what changes from April 2027, and these are now law under the Finance Act 2026. Keeping up with each Budget helps landlords make informed decisions about their investments.
Wider Impact on the Rental Market
Section 24 is one of several changes, alongside higher mortgage rates and new regulation, that have reshaped the UK rental market. Landlords point to several outcomes:
- Rising Rents: Landlords facing higher taxes and reduced profits have sought to increase rents to cover these costs.
- Reduced Rental Supply: The financial strain has led some landlords to sell properties or downsize their portfolios, reducing the choice of rental homes in some areas.
- Shifts in Investment Strategies: Many landlords are moving away from personally owned buy-to-let, opting for limited company ownership or commercial property to mitigate the effects of Section 24.
- Impact on Housing Affordability: Where rents rise and supply falls, tenants feel the pressure, particularly in high-demand areas.
If you are reviewing your portfolio in light of these changes, our guide to strategies for portfolio landlords is a useful next read.
Conclusion
Section 24 has significantly changed the UK rental market, increasing tax burdens and reducing profitability for landlords, especially higher-rate taxpayers with large mortgages. From April 2027 the separate property income rates add a further, smaller increase. This has led many to rethink their strategies, whether by restructuring portfolios or exploring new investment routes.
If you let property in your own name, run your numbers for 2027/28 now, using the worked example above as a guide, and ask an accountant to check them before you change how you own or finance your portfolio.
Unlike finance costs, letting and management fees are still deducted from rental income in full, so the cost of full property management attracts relief at your full tax rate.
FAQs
How does Section 24 affect first-time landlords?
First-time landlords face unique challenges under Section 24, as they don't have the benefit of previous tax reliefs. It's crucial to account for the basic rate cap on finance cost relief when calculating returns, and to model the 22%, 42% and 47% property rates that apply from April 2027, as they can significantly impact cash flow and profitability.
Can I still deduct other property expenses under Section 24?
Yes, while Section 24 limits mortgage interest relief, you can still deduct other expenses like maintenance, repairs, and letting agent fees from your rental income. These deductions help reduce taxable income but don’t offset the increased tax burden on mortgage interest.
Is it worth becoming a landlord in 2026 with Section 24 in place?
Becoming a landlord in 2026 can still be profitable, but it’s more challenging due to Section 24 and the higher property income rates from April 2027. Prospective landlords need to carefully assess financial viability, including the after-tax yield, and take advice from an accountant on whether personal or limited company ownership suits them.
How can landlords manage cash flow under Section 24?
Effective cash flow management under Section 24 involves strategies like reviewing rent against the local market, cutting costs, and refinancing mortgages to lower interest rates. Budgeting for tax payments throughout the year is also crucial to avoid cash flow issues.
Does Section 24 apply to overseas landlords?
Yes, Section 24 applies to individual landlords with UK residential property, including those who live overseas. Non-resident companies have paid Corporation Tax on UK property income since 6 April 2020, so they are not caught by it. It’s essential for overseas landlords to comply with these rules and consider seeking professional tax advice to manage the impact effectively.
Will Section 24 be reversed?
There is no sign of that. The Finance Act 2026 keeps the restriction and sets finance cost relief at 22% from April 2027 to match the new property basic rate. Always check the latest position on GOV.UK or with your accountant before making decisions.
Talk to Jones Robinson About Your Lettings
We do not give tax advice, and we always recommend speaking to a qualified accountant about Section 24. What we can do is help you understand the rental market across West Berkshire, South Oxfordshire and Wiltshire, set the right rent, and take the day-to-day work off your hands with our property management service. If you are weighing up whether to keep or sell, you can also book a valuation. Contact your local branch:
Devizes: 01380 730200
Didcot: 01235 816222
Lambourn & Hungerford: 01488 73337
Marlborough: 01672 556640
Newbury: 01635 35010
Pewsey: 01672 556640
Related Articles:
How to Avoid Paying Tax on Rental Income
Tenants in Common vs Joint Tenants