Tax Explained
Section 24 Landlord Guide
Section 24 of the Finance Act 2015 removed the right to deduct mortgage interest from rental income. Since April 2020 all landlords receive only a 20% basic-rate tax credit on finance costs, which substantially increases the effective tax rate for higher-rate and additional-rate taxpayers.
Quick answer
What are the key takeaways?
Since April 2020, mortgage interest and finance costs are no longer deductible from rental income — instead landlords receive a 20% basic-rate tax credit.
Key takeaways
Since April 2020, mortgage interest and finance costs are no longer deductible from rental income — instead landlords receive a 20% basic-rate tax credit.
Higher-rate landlords effectively pay tax on profit that does not exist after financing costs, pushing effective tax rates above 40%.
Incorporation may reduce the impact, but LBTT, ADS and the loss of personal allowances must be weighed carefully.
Scottish landlords with income above £43,662 pay the 42% higher rate, making Section 24's impact even more pronounced than in England.
How does Section 24 work?
Before Section 24 was phased in, landlords could deduct mortgage interest and other finance costs from their rental income before calculating their tax liability. Under Section 24, the full rent is taxable income — the finance costs are then given back as a 20% basic-rate tax credit.
For a basic-rate taxpayer, the practical result is broadly neutral — the 20% credit offsets 20% tax on the interest. For a higher-rate (40%) taxpayer, it is not: they pay 40% tax on the interest component of their rental income and receive only 20% credit back, resulting in a net cost of 20p in the pound on every pound of mortgage interest paid.
How does Section 24 affect higher-rate landlords?
A landlord in the higher-rate band can find themselves paying tax on a paper profit while their actual cash profit after the mortgage is much lower or even negative. This effect is most pronounced for landlords with high loan-to-value ratios on properties with modest yields.
Because Section 24 increases the taxable income figure (even though it provides a credit), it can also push landlords into a higher tax band, reduce their personal allowance (which tapers away above £100,000 of adjusted net income) and affect their child benefit entitlement.
Should landlords incorporate to avoid Section 24?
Limited companies can still deduct mortgage interest as a business expense, making them immune from Section 24. However, incorporating an existing rental portfolio is not straightforward: LBTT (in Scotland) or SDLT (in England) is chargeable on the transfer of properties to a company at market value, the ADS surcharge in Scotland adds a further 8%, and Capital Gains Tax may be triggered on the disposal.
The decision to incorporate should be modelled carefully for each individual, taking into account the number of properties, the mortgage positions, the landlord's other income and the long-term investment plans. For some landlords the tax savings justify the costs; for others, the upfront tax cost of incorporation outweighs the ongoing benefit.
How do Scottish income tax rates affect Section 24?
In Scotland, the higher-rate band begins at £43,662 rather than £50,270. This means Scottish landlords reach the point where Section 24 starts to hurt at a lower income level than English landlords.
A Scottish landlord in the 42% higher-rate band receives only a 20% credit against 42% tax on finance costs — a net cost of 22p per pound of interest, compared to 20p for an English higher-rate taxpayer. For landlords in the Scottish advanced (45%) or top (48%) rate bands, the disparity is even greater.
Questions
What do people ask about section 24?
These answers cover the practical points clients commonly raise before asking Countify to review their own position.
Ask a different questionFurnished holiday lettings (FHLs) were previously outside Section 24, but the FHL regime was abolished from April 2025. FHL properties are now treated as standard property businesses and Section 24 applies.
Yes. Allowable expenses such as letting agent fees, repairs and maintenance, insurance, and accountancy costs can still be deducted from rental income in the usual way. Section 24 only restricts finance costs.
On a Self-Assessment return, rental income and allowable expenses are reported on the SA105 property pages. The finance costs are entered separately and the 20% basic-rate credit is calculated automatically.
Yes. Countify can calculate your current tax position under Section 24, model the impact of different mortgage levels and income scenarios and assess whether incorporation would improve or worsen your overall position.
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Countify's blog covers practical updates for individuals, landlords and business owners.
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