The introduction of Section 24 of the Finance Act 2015 has significantly changed how landlords in the UK are taxed on their rental income. These reforms, which were phased in from April 2017 to April 2020, continue to reshape the property investment landscape today.
Whether you’re new to these rules or already feeling their effects, understanding what Section 24 means, and how to respond strategically, is essential for every landlord.
What Is Section 24?
Section 24 redefined how mortgage interest and finance costs are treated for tax purposes. Before its introduction, landlords could deduct 100% of their mortgage interest and finance costs from their rental income before calculating tax.
Individual residential landlords can no longer deduct qualifying finance costs such as mortgage interest when calculating taxable property profits. Instead, relief is generally given through a basic-rate tax reduction, subject to HMRC’s calculation rules.
Why Was Section 24 Introduced?
The government introduced Section 24 as part of a broader effort to make housing more accessible, particularly for first-time buyers.
In the mid-2010s, the buy-to-let market was booming. Property investors were expanding portfolios rapidly, and competition between landlords and homebuyers pushed prices higher. Section 24, along with other measures such as the 3 percentage-point higher rates for additional dwellings introduced in April 2016, aimed to rebalance the housing market by:
- Reducing the appeal of buy-to-let as an investment option,
- Encouraging homeownership, and
- Creating fairer competition between landlords and residential buyers.
While these goals were well-intentioned, the policy has had far-reaching consequences for landlords’ finances.
Before and After Section 24
Before Section 24:
- Landlords could offset 100% of mortgage interest and finance costs.
- Tax was calculated on profit after expenses.
- Many landlords enjoyed lower effective tax rates.
After Section 24:
- Taxable property profit is calculated after deducting allowable property expenses, but qualifying residential finance costs are not deducted in the same way. Relief for those finance costs is instead given through a basic-rate tax reduction.
- For 2026/27, the residential finance-cost tax reduction is based on the 20% basic rate, subject to HMRC’s limits on the amount that can qualify for relief.
Finance costs affected include:
- Mortgage interest payments
- Loan interest for property improvements
- Mortgage arrangement fees
- Early repayment charges
The impact has been most significant for higher-rate taxpayers, many of whom now face substantially larger tax bills and reduced profit margins.
How Section 24 Works – A Simple Example
Let’s break it down:
| Example | Basic Rate (20%) | Higher Rate (40%) |
| Rental Income | £15,000 | £15,000 |
| Mortgage Interest | £5,000 | £5,000 |
| Tax on Rental Income | £3,000 | £6,000 |
| Less 20% Tax Credit on Interest | £1,000 | £1,000 |
| Final Tax Bill | £2,000 | £5,000 |
The difference is clear, while basic rate taxpayers are less affected, higher-rate landlords are seeing a sharp drop in net returns.
Who Is Affected by Section 24?
The residential finance-cost restriction can apply to:
- individuals letting residential property in the UK or overseas
- non-UK resident individuals letting UK residential property
- individuals letting residential property through a partnership
- certain trustees or beneficiaries liable to Income Tax on residential property profits
UK and non-UK resident companies are not subject to this Income Tax finance-cost restriction. Finance costs relating to non-residential property are also treated differently.
How Has Section 24 Affected Landlords?
The financial effects of Section 24 have been widespread. Common challenges include:
- Higher tax bills, especially for higher-rate taxpayers,
- Reduced profitability even for previously successful properties,
- Pressure to increase rents to cover additional costs,
- Cash flow difficulties, and
- Unintended tax band increases, pushing some basic-rate landlords into higher brackets.
These challenges have led many investors to reassess their property strategies.
How Landlords Are Responding
Since the introduction of Section 24, landlords have adapted in a variety of ways:
1. Incorporation
Setting up a limited company has become increasingly popular. Companies can still deduct mortgage interest as an expense, and corporation tax rates may provide additional benefits. The number of landlords incorporating their portfolios has risen sharply in recent years.
2. Selling Properties
Some landlords, particularly those with smaller portfolios or high borrowing costs, have chosen to sell part or all of their holdings due to reduced profitability.
3. Adjusting Investment Focus
Some landlords review the type of property they hold, their level of borrowing and how future investments are structured. Finance costs attributable to commercial property are not subject to the same residential finance-cost restriction. However, former Furnished Holiday Lettings no longer have their previous special tax treatment following the abolition of the FHL regime from 6 April 2025.
4. Increasing Rents
To maintain margins, many landlords have raised rents, though this has contributed to affordability challenges in some regions.
Impact on Tenants and the Wider Market
While Section 24 was designed to help homebuyers, its ripple effects have influenced the rental sector.
- Rising rents as landlords pass on increased costs,
- Reduced housing supply as some landlords exit the market, and
- Affordability pressures in areas where rent growth outpaces income growth.
Recent data suggests that a growing number of landlords have sold rental properties due to higher tax liabilities and tighter profit margins.
What Landlords Can Do Now
Landlords affected by the residential finance-cost restriction can review their borrowing, property profitability, ownership structure and future investment plans to understand how the rules affect their overall tax position.
- Review your portfolio – assess which properties remain viable post-tax.
- Seek professional tax advice – expert guidance can reveal opportunities for restructuring or savings.
- Consider ownership structure carefully – a limited company may be appropriate for some future property investments, but transferring existing personally owned property to a company can have Capital Gains Tax, Stamp Duty Land Tax, financing and other consequences. Professional advice should be taken before restructuring.
- Revisit mortgage options – refinancing or fixing rates may improve cash flow.
- Enhance yields – through refurbishments, higher-value rentals, or short-term lets.
- Use smart accounting tools – track rental income, expenses, and tax efficiently.
Can I still deduct mortgage interest?
Individual residential landlords generally cannot deduct qualifying mortgage interest and other residential finance costs as an ordinary expense when calculating property profits. Instead, relief is normally given through a basic-rate tax reduction, subject to HMRC’s calculation rules.
Is tax still based on profit?
Yes, taxable property profit is still calculated after deducting allowable property expenses. The important difference is that qualifying residential finance costs are not deducted when calculating that profit for affected individual landlords. Relief for those finance costs is instead given through the basic-rate tax reduction.
Does it apply to all landlords?
No. The residential finance-cost restriction does not apply to every landlord. It can apply to individuals letting residential property, including individuals who let property through a partnership, as well as certain trustees or beneficiaries liable to Income Tax on residential property profits. UK and non-UK resident companies are not subject to this Income Tax finance-cost restriction. Finance costs relating wholly to non-residential property are treated differently.
Does Section 24 affect stamp duty or capital gains?
No, it only changes how income tax is calculated on rental earnings.
Moving Forward with Confidence
There’s no denying that Section 24 has added complexity and pressure for UK landlords, particularly those with mortgages. But with the right strategy and professional guidance, you can still achieve long-term success in property investment.
At Accounting People, we help landlords navigate tax changes, structure their portfolios efficiently, and make informed financial decisions. Whether you’re managing one property or an extensive portfolio, our team can guide you towards a more tax-efficient and resilient future.
