How Section 24 restricts mortgage interest deductions for individual landlords in England, the 20% tax credit replacement, and impact on higher-rate taxpayers.
England only. This guide applies to private rented property in England. Wales and Scotland have separate legal frameworks — dedicated guides will be published separately.
Before April 2020, landlords deducted mortgage interest from rental income before calculating tax. Section 24 replaced this with a 20% tax credit on finance costs, increasing the tax bill for higher and additional-rate taxpayers with mortgaged buy-to-let properties.
| Tax year | Deductible interest | Tax credit on remainder |
|---|---|---|
| 2017–18 | 75% | 25% at 20% |
| 2018–19 | 50% | 50% at 20% |
| 2019–20 | 25% | 75% at 20% |
| 2020–21 onwards | 0% | 100% at 20% |
| Item | Old rules | Section 24 rules |
|---|---|---|
| Rental income | £12,000 | £12,000 |
| Allowable expenses (excl. interest) | £2,000 | £2,000 |
| Mortgage interest | Deducted: £4,000 | Not deducted |
| Taxable profit | £6,000 | £10,000 |
| Tax at 40% | £2,400 | £4,000 |
| Finance cost credit (20% × £4,000) | N/A | −£800 |
| Net tax | £2,400 | £3,200 |
The higher-rate landlord pays £800 more tax under Section 24 despite identical cash flow. The effective tax rate on the interest portion exceeds 40%.
Section 24 of the Finance (No. 2) Act 2015 phased out full tax relief on mortgage interest for individual landlords. Since April 2020, landlords receive a 20% tax credit on finance costs instead of deducting interest as an expense.
Individual landlords (sole traders and partnerships) letting residential property in England and the wider UK. Limited companies, furnished holiday lets, and commercial property are not subject to Section 24.
You calculate tax on rental income without deducting mortgage interest, then subtract a credit equal to 20% of your finance costs. Basic-rate taxpayers are broadly neutral; higher-rate taxpayers pay more tax than under the old rules.
Transferring incurs SDLT, potential CGT, and mortgage refinancing costs. The company can deduct interest fully, but this must be weighed against setup costs, accountancy fees, and mortgage availability.
No. Section 24 applies to landlord tax returns. Agents should understand it when advising landlord clients on profitability and when discussing portfolio restructuring.
General information only — not legal advice. Laws change; verify against current legislation and seek professional advice for your situation.
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