Section 24: The Tax Rule That Is Costing Landlords Thousands

Section 24 has been fully in force since April 2020. Many landlords know it exists but are hazy on what it actually costs. The worked numbers make the impact concrete: a higher-rate taxpayer on a typical mortgaged buy-to-let can end up paying tax equal to 100% of real annual profit.

That is not a worst-case edge case. It falls out of a straightforward calculation on a property with ordinary numbers.

What Section 24 Is

Section 24 of the Finance (No. 2) Act 2015 restricts how individual residential landlords claim relief on finance costs. It was phased in gradually between April 2017 and April 2020, with the restriction increasing each year until it applied in full from 6 April 2020.

Under the old system, mortgage interest was deducted from rental income before calculating taxable profit. A 40% taxpayer got 40p of tax relief for every pound of interest paid.

Under Section 24, you cannot deduct finance costs from rental income. Instead, HMRC calculates a 20% basic rate tax credit on your total finance costs and applies it against your income tax liability. A 40% taxpayer now gets 20p of credit per pound of interest, regardless of the rate at which that rental income is taxed.

That switch from a full deduction to a fixed 20% credit is the core of the rule.

Source: legislation.gov.uk Finance (No. 2) Act 2015, Section 24; GOV.UK guidance on changes to tax relief for residential landlords [verified June 2026]

What Counts as Finance Costs

The credit covers finance costs as defined by HMRC in the Property Income Manual (PIM2054 and PIM2105). These include:

Mortgage interest (but not capital repayments on a repayment mortgage)
Arrangement fees on mortgages and loans
Loan commitment fees and guarantee fees
Fees in connection with the security of a loan
Interest on loans taken out to buy furnishings for the property

Capital repayments receive no relief at all under Section 24. Only the interest element of mortgage payments qualifies.

Arrangement fees are worth flagging specifically. If you remortgaged in the last tax year and paid a product fee, that cost qualifies for the credit. A surprising number of landlords leave it off their self-assessment return and understate their total finance costs as a result.

Frequently Asked Questions

What is Section 24 and who does it affect?

Section 24 of the Finance (No. 2) Act 2015 restricts how individual landlords get relief on mortgage interest. Rather than deducting interest as an expense before calculating taxable profit, individual landlords now receive a 20% basic rate tax credit on their finance costs. It applies only to individuals holding residential property personally. Limited companies are not affected.

Does Section 24 affect basic-rate taxpayers?

For a landlord who pays tax at the basic rate and whose gross rental income does not push them into the higher-rate band, Section 24 has a limited direct impact. The 20% credit broadly offsets the 20% basic rate on finance costs. However, Section 24 inflates total taxable income, which can push basic-rate landlords across the £50,270 threshold into the higher-rate band even when real cashflow is modest.

What counts as finance costs under Section 24?

Finance costs include mortgage interest (not capital repayments), arrangement fees, loan commitment fees, guarantee fees, fees in connection with the security of a loan, and interest on loans taken out to buy furnishings. Capital repayments on a repayment mortgage do not qualify and receive no relief under Section 24.

Does Section 24 apply to limited companies?

No. Section 24 applies only to individuals holding residential property in their personal name. A limited company can still deduct mortgage interest and other finance costs as a business expense before calculating taxable profit. This is one of the key financial reasons why 43% of buy-to-let mortgage purchases in 2025 were made through limited companies, up from 7.5% in 2018.

How does Section 24 change from April 2027?

From 6 April 2027, the Section 24 tax credit increases from 20% to 22%, in line with the new property basic rate. However, the higher property income tax rate also rises to 42%, so the gap for higher-rate taxpayers stays at 20 percentage points. The change provides a small offset but does not close the gap between the rate at which higher-rate landlords are taxed and what they receive as credit.