Section 24 of the Finance (No. 2) Act 2015 (with later amendments in the Finance (No. 2) Act 2017) restricted the way individual landlords claim relief on mortgage interest and other finance costs. The phased restriction completed in tax year 2020/21 and has been fully in force ever since. The statutory basis lives in ITTOIA 2005 sections 272A, 272B and 274A–274C; HMRC's explainer is at PIM2054.
That's the legal scaffolding. What does it actually mean for a UK landlord?
What changes from April 2027 — the new property income surcharge
Section 24 itself is unchanged, but the rates it bites at are about to move. The Autumn Budget 2025 introduced a 2 percentage-point surcharge on property income — a new set of property-specific rates sitting above the main income tax rates. From 6 April 2027, property income (after the existing Section 24 mechanics) will be taxed at:
- Property basic rate: 22% (was 20%)
- Property higher rate: 42% (was 40%)
- Property additional rate: 47% (was 45%)
To preserve the policy intent of Section 24 — that finance-cost relief is at basic rate, not the landlord's marginal property rate — the 20% basic-rate credit on finance costs rises to 22% from 6 April 2027 to match the new property basic rate. The relief stays at basic-rate level; it just tracks up to the new property basic rate, not the new higher property rate. Higher-rate landlords still bear the gap.
One other Autumn Budget 2025 change worth flagging for landlords who hold property in a Ltd Co and extract profit by dividend: dividend tax rates rose 2 percentage points from 6 April 2026 — basic 8.75% → 10.75%, higher 33.75% → 35.75%, additional 39.35% → 41.35%. That changes the personal-vs-Ltd Co calculus, particularly for landlords relying on dividend extraction rather than retained profit.
Sources: gov.uk “Changes to tax rates for property, savings and dividend income”; Travers Smith and BCLP Autumn Budget 2025 summaries.
What changed, in plain English
Before Section 24, an individual landlord declared rental income net of allowable expenses — including mortgage interest. You paid income tax on whatever was left. A higher-rate landlord effectively got 40% relief on every pound of mortgage interest.
After Section 24, you can no longer deduct mortgage interest from rental income. Instead, the gross rental income (less non-finance expenses like management, voids, repairs and insurance) is your taxable property income. You then receive a tax credit equal to 20% of your finance costs — applied against the tax owed.
For a basic-rate (20%) landlord, the cash effect is broadly neutral: 20% relief before, 20% credit after. For a higher-rate (40%) landlord, the relief halved. For an additional-rate (45%) landlord, it dropped further still.
The phasing
Section 24 was phased in over four tax years — the proportion of finance costs you could still deduct directly fell each year:
| Tax year | Finance costs deductible | Relieved as 20% credit |
|---|---|---|
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 onwards | 0% | 100% |
From 6 April 2020 onwards, no individual landlord can deduct any mortgage interest as an expense. The 20% credit is the only relief mechanism.
The three caps that catch people out
The 20% credit is not always 20% of your full finance costs. HMRC restricts the credit to the lower of three figures:
- Total finance costs for the year, including any costs brought forward from earlier years where the credit was previously capped.
- Profits of the property business in the year, after losses and after deducting non-finance costs.
- Adjusted total income — your total income after losses and reliefs and personal allowance, excluding savings income and dividend income.
Cap (2) is the silent killer. A landlord whose property business posts a loss in the year — perhaps from a major refurb, big repairs, or a void cycle — can find that the cap forces their finance-cost relief down to zero. The unused finance costs roll forward indefinitely and can be relieved in a future year when the property business is profitable again. But in a loss year, you get no current relief at all.
A worked example
Take a higher-rate (40%) landlord with one BTL: gross annual rent £18,000, operating costs (mgmt, voids, maintenance, insurance) £4,500, mortgage interest £8,000. They have other income (salary) of £55,000.
Pre-Section 24:
- Net rental profit: £18,000 − £4,500 − £8,000 = £5,500
- Tax on rental profit at 40%: £2,200
Post-Section 24:
- Taxable rental income: £18,000 − £4,500 = £13,500
- Tax on rental income at 40%: £5,400
- Less 20% credit on £8,000 finance costs: £1,600
- Net rental tax bill: £3,800
Section 24 has cost this landlord £1,600 a yearon a single property. On a portfolio of five with the same shape, that's £8,000 a year that didn't exist as a tax bill before 2020. This is the calculation that drove a generation of landlords toward limited-company structures.
From April 2027, the same scenario gets worse — see the April 2027 sidebar above. The new 42% property rate against a 22% credit widens the gap by roughly £200 per property per year for a higher-rate landlord on these numbers, and the threshold freeze through April 2031 means more rent gets taxed at the higher rate in the first place.
Who Section 24 doesn't apply to
Three groups are outside Section 24:
- Limited companies.A company holding rental property deducts mortgage interest in full as a business expense and pays corporation tax on the resulting profit (19% small-profits rate up to £50,000, 25% main rate above £250,000, with marginal relief between). Section 24 simply doesn't apply to corporate landlords.
- Commercial property landlords. Loans wholly for commercial properties fall outside the residential property finance-cost restriction.
- Furnished Holiday Lets — historically. The FHL regime was abolished from 6 April 2025. Before then, FHL properties were treated as a trade and had different rules. After the abolition, former FHLs fall into the standard UK property business and are subject to Section 24 like any other residential let. So this exemption is moot from 2025/26 onwards.
The tools landlords use to reduce the impact
Incorporation
Moving a portfolio from personal name into a limited company sidesteps Section 24 — the company deducts interest in full and pays corporation tax. But the move itself is a tax event. Three costs:
- SDLT. The transfer is a sale at market value to the company, which pays SDLT including the 5% additional dwelling surcharge.
- CGT. The individual is treated as disposing at market value and pays CGT on any gain.
- Mortgage refinancing. Personal BTL mortgages cannot be assigned to a company. The Ltd Co takes new finance, often at slightly higher rates than the personal equivalent.
Section 162 Incorporation Reliefcan defer the CGT — but only if HMRC accepts the landlord is running a “business” rather than a passive investment. The leading authority is Ramsay v HMRC [2013] UKUT 0226. HMRC's rule of thumb, documented in their Capital Gains Manual at CG65715, is around 20 hours per week of personal management activity— though it's not statutory and the test is qualitative. Many small landlords don't qualify.
SDLT can sometimes be eliminated where the existing portfolio is held through a genuine partnership meeting Schedule 15 paragraph 18 conditions, but this is HMRC-aggressive territory — specialist advice required.
Rule of thumb (and only that): incorporation tends to be worth considering once your portfolio is generating £30,000+ of mortgage interest annually AND you're a higher-rate taxpayer AND you're likely to hold for 5+ years to amortise the transition costs. Run the numbers properly before committing.
Spousal income split (Form 17)
If property is jointly owned by spouses or civil partners, HMRC defaults to a 50/50 income split for tax purposes. Lodging a Form 17 declarationwith a supporting declaration of trust lets you split income unequally — diverting more income to the lower-earning spouse's lower marginal tax rate.
Conditions: the property must be held as tenants-in-common (not joint tenants), the trust deed must support the unequal split, and Form 17 must reach HMRC within 60 days of the trust deed's signature date.
Paying down debt
Lower mortgage balance = lower finance costs = less to be relieved at only 20%. Mathematically clean but a cashflow trade-off — the capital you pay into the mortgage stops earning elsewhere. Generally only makes sense once ISA and pension allowances are maxed and the post-tax return on alternative investments is below your mortgage rate.
Common misconceptions
- “Section 24 means no mortgage interest relief at all.” Wrong. The 20% basic-rate credit still exists. What changed is the rate (was 40% for higher-rate landlords; now 20%) and the mechanism (was a deduction; now a credit).
- “Limited companies pay no tax.”Wrong. Companies pay corporation tax (19% small profits, 25% main rate, marginal relief between £50k–£250k profits). The advantage isn't zero tax; it's that interest is deductible at the corporate rate, not stuck at 20%.
- “Incorporation is always worth it.” Wrong. SDLT + CGT on transfer can wipe years of post-incorporation savings. The bigger your portfolio, the higher the friction cost to move.
- “Section 24 only affects me if I'm a higher-rate taxpayer.” Mostly right but not always. Gross rent is now reported as income, which can push some basic-rate landlords above the higher-rate band. Worth checking against your full income picture.
What to actually do
- Calculate your real Section 24 cost.Take your annual mortgage interest and multiply by the difference between your effective marginal tax rate and 20%. That's the annual cost. If it's <£2,000, structural changes probably aren't worth the friction. If it's >£10,000, structural options deserve serious modelling.
- Speak to a property accountant — not a generalist.Tax planning around property is specialist territory; many high-street accountants don't know the incorporation reliefs or the partnership SDLT mechanics.
- Don't make decisions on tax alone. The right structure depends on your personal income, hold period, exit plan, and risk tolerance. Tax is one input.
Section 24 isn't going away — successive governments have shown no appetite to reverse it. Treating it as a permanent feature of the UK landlord landscape, and structuring accordingly, is the realistic posture.
Frequently asked questions
Does Section 24 mean I get no relief on mortgage interest at all?
No — that's the most common misconception. You still get a 20% basic-rate tax credit on finance costs (mortgage interest plus arrangement fees). What changed is that finance costs are no longer deducted from rental income before tax is calculated. For higher-rate landlords (40%) the effective relief halved from 40% to 20%; for additional-rate (45%) it dropped further. For basic-rate landlords the cash effect is broadly neutral except where Section 24 pushes you into a higher band by raising taxable income.
Who does Section 24 apply to?
Individual landlords and partnerships of individuals running a UK property business (residential lettings). It does NOT apply to limited companies, which deduct mortgage interest in full as a normal business expense and pay corporation tax on the resulting profit. Commercial property is also outside Section 24. The Furnished Holiday Let regime, which previously gave FHL properties an exemption, was abolished from 6 April 2025 — so former FHLs now fall under standard property income rules and Section 24 applies in the same way as any other residential let.
What are the three caps on the 20% credit?
HMRC limits the 20% basic-rate tax reducer to the LOWER of: (1) total finance costs in the year (current year plus any brought forward); (2) profits of the property business after losses; (3) adjusted total income — your income (after losses, reliefs and personal allowance) excluding savings and dividend income. The third cap is what bites — a landlord with property losses or other income offsets can find their credit limited or zero, with the unused portion carried forward indefinitely.
Should I move my portfolio into a limited company?
Sometimes — but the maths is more complex than "my income tax bill drops, so let's incorporate." Transferring property into a Ltd Co is a disposal at market value: you pay CGT on the gain, plus SDLT (with the 5% additional dwelling surcharge) on the company purchase. Mortgages typically need refinancing onto Ltd Co BTL products, which often carry slightly higher rates. Section 162 Incorporation Relief can defer the CGT, but only if HMRC accepts you're running a 'business' rather than a passive lettings activity (HMRC's rule of thumb is around 20 hours a week of personal management, derived from the Ramsay tax tribunal case — it's not statutory). Run both scenarios — personal vs Ltd — over a 5-10 year horizon before deciding.
What is the spousal Form 17 split and does it help?
If a property is jointly owned by spouses or civil partners, the default income split for tax purposes is 50/50 regardless of actual ownership. Lodging an HMRC Form 17 declaration (with a supporting declaration of trust) lets the higher-earning spouse divert a larger share of the rental income to the lower-earning spouse, who pays a lower marginal tax rate. The property must be held as tenants-in-common (not joint tenants), the trust deed must support the unequal split, and Form 17 must be lodged within 60 days of the trust deed signature. It's a useful lever for couples where one earns significantly more than the other.
Will paying down the mortgage help with Section 24?
Yes, mathematically — lower interest means less of your tax to be relieved at only 20%. But it's a cashflow trade: capital you pay into the mortgage stops earning a return elsewhere. Most landlords find this only makes sense when (a) you're on a high-rate mortgage, (b) you've maxed your ISA/pension allowances, and (c) you've calculated the post-tax return on alternative investments. Useful but rarely the cleanest answer on its own.
What if I'm a basic-rate taxpayer — does Section 24 even affect me?
Often less than you'd think. The 20% credit replaces what you used to deduct at 20%, so the cash effect is broadly neutral. The catch is that gross rent is now reported as income before the credit applies, which can push you above the £100,000 personal allowance taper threshold or into the higher-rate band. So a basic-rate landlord who'd previously been comfortably under £50,270 may find the gross-reporting change tips them into 40% on a portion of their income. Check before assuming it's a non-issue for you.