- Section 24
- the rule in the Finance (No. 2) Act 2015 that stops individual residential landlords deducting mortgage interest from rental income, fully in force since April 2020.
- Finance costs
- mortgage interest and loan arrangement fees, the items the restriction applies to.
- 20% basic-rate tax credit
- the relief that replaced the old deduction. Every landlord gets 20% of finance costs back as a credit against their tax bill, whatever their tax band.
- Section 24 profit
- taxable rental profit measured before deducting mortgage interest, which is higher on paper than the cash profit.
- Individual versus company
- Section 24 applies to individuals, not limited companies, which still deduct mortgage interest as a normal business expense.
Key facts
- Section 24 has been fully in force since April 2020 with a 20% tax credit on finance costs
- On £20,000 rent with £2,000 other costs, Section 24 taxable profit is £18,000 before interest
- Higher-rate landlord tax bill rises from £3,600 to £5,400 on £9,000 mortgage interest
- Furnished holiday lets lost full mortgage interest relief from 6 April 2025
Model the after-tax return on a let with the buy to let calculator and check the headline yield with the rental yield calculator.
Because companies escape Section 24, many landlords compare structures: see limited company vs sole trader guide and the limited company tax calculator, and remember the entry cost in stamp duty rates guide.
Section 24: the mortgage interest restriction
Before April 2017, landlords could deduct 100% of their mortgage interest from rental income before calculating tax. From April 2020, the system changed to a 20% tax credit on mortgage interest. This is a fundamental shift in how higher rate and additional rate taxpayers experience their rental income.
Under the old system (fully deductible interest)
Rental income: £12,000
Mortgage interest: £6,000
Taxable profit: £6,000
Income tax at 40% (higher rate): £2,400
Net profit after tax: £3,600
Under Section 24 (20% credit only)
Rental income: £12,000
Operating expenses (not interest): £2,000
Taxable income: £10,000
Income tax at 40%: £4,000
Less 20% mortgage interest credit: 20% x £6,000 = £1,200
Net tax: £2,800
Net profit after tax: £2,200
The same landlord now pays £400 more in tax (£2,800 vs £2,400), and their taxable income is higher (affecting other thresholds such as the personal allowance taper and child benefit). This is the primary reason buy-to-let viability has declined for higher rate taxpayer landlords.
Buy-to-Let Calculator
Model your exact position including Section 24 effects.
Additional property stamp duty surcharge
Since October 2024, the additional property surcharge increased from 3% to 5%. This applies to any residential property purchase where the buyer already owns residential property.
| Purchase price | Stamp duty (owner-occupier) | Stamp duty (BTL/second home) |
|---|---|---|
| £150,000 | £500 | £8,000 |
| £200,000 | £1,500 | £11,500 |
| £250,000 | £2,500 | £15,000 |
| £300,000 | £5,000 | £20,000 |
| £400,000 | £10,000 | £30,000 |
| £500,000 | £15,000 | £40,000 |
The 5% surcharge on a £250,000 property is £12,500 additional tax. This increases the deposit required and extends the payback period before the investment generates positive returns.
See the Stamp Duty Calculator for an exact figure on your planned purchase.
Capital gains tax on rental property disposals
When you sell a buy-to-let property at a profit, CGT is charged on the gain (after allowable costs and the £3,000 annual exempt amount). Residential property rates for 2026/27:
- 18% for gains in the basic rate band
- 24% for gains in the higher and additional rate bands
Worked example: sold for £280,000, bought for £200,000 in 2015
Gain: £280,000 minus £200,000 minus £10,000 (allowable improvement and selling costs) = £70,000
Annual exempt amount: £3,000
Taxable gain: £67,000
For a higher rate taxpayer: £67,000 x 24% = £16,080 CGT
For a basic rate taxpayer with some remaining basic rate band: mixed rate calculation
HMRC requires the CGT to be reported and paid within 60 days of completion of the sale. Use the Capital Gains Tax Calculator to model your expected bill.
The April 2027 property income tax rises
The Autumn Budget 2025 announced that property income tax rates will rise by 2% from April 2027. The new rates:
| Tax band | Current (2026/27) | From April 2027 |
|---|---|---|
| Basic rate on rental profits | 20% | 22% |
| Higher rate on rental profits | 40% | 42% |
| Additional rate on rental profits | 45% | 47% |
This makes the rental income tax burden even heavier for landlords. A higher rate landlord currently paying 40% on rental profits will pay 42% from April 2027.
Expert Tip
The April 2027 property income tax rise is two years away. That creates a planning window. Landlords who are considering exiting should model whether selling before April 2027 reduces their CGT exposure (CGT rates have not yet been confirmed to change) or whether the ongoing rental income is valuable enough to continue despite higher tax. For some landlords, particularly those with smaller portfolios and significant mortgage debt, the combination of Section 24 and the 2027 rate rise makes a structured exit the financially rational choice.Running buy-to-let through a limited company
An increasing number of landlords incorporate to hold buy-to-let properties through a limited company. The key reasons:
- Mortgage interest is fully deductible as a business expense for a limited company (Section 24 does not apply to companies)
- Corporation tax on profits is 19% for smaller companies (below £50,000 profit)
- Retained profits can be left in the company and drawn when income is lower
The drawbacks:
- Transferring existing personally owned properties to a company triggers both SDLT (on the full market value) and potentially CGT (on the gain)
- Mortgage options for limited company landlords are fewer and typically at higher rates
- Additional administration and accounting costs
For investors starting from scratch with no existing portfolio, company structure often makes financial sense. For existing landlords considering transfer, the transaction costs are usually prohibitive unless the portfolio is very large.
Net rental yield after all taxes: a realistic picture
| Scenario | Gross yield | Net yield after all taxes (higher rate, Section 24) |
|---|---|---|
| No mortgage, large city | 4.5% | 2.7% |
| 50% LTV mortgage | 4.5% | 1.8% |
| 75% LTV mortgage | 4.5% | 0.4% |
| 75% LTV mortgage | 6.0% | 2.1% |
These net yields show why highly leveraged buy-to-let at moderate yields now generates minimal net return for higher rate taxpayers. The calculation improves significantly for basic rate taxpayers, or for higher earners using a limited company structure where full interest deductibility applies.
Making Tax Digital for landlords
From April 2026, landlords with gross rental income over £50,000 must comply with Making Tax Digital for Income Tax (MTD for IT). This means keeping digital records using HMRC-compatible software and submitting quarterly income and expense updates instead of an annual self-assessment return. The first quarterly report is due by 7 August 2026. From April 2027, the threshold drops to £30,000. Landlords below these thresholds are not affected and can continue with annual self-assessment.
Official sources
- GOV.UK: Income Tax relief for landlords
- GOV.UK: Capital Gains Tax on property
- HMRC: Autumn Budget 2025 property income tax measures
- HMRC: Making Tax Digital for Income Tax
Related Calculators
Frequently Asked Questions
Section 24 restricts the deduction of mortgage interest for individual landlords to a 20% tax credit, regardless of their actual income tax rate. Higher and additional rate taxpayers effectively pay 40% or 45% tax on income before any interest relief, receiving back only 20p relief for every £1 of interest paid.
Standard SDLT rates plus a 5% surcharge on the entire purchase price as of October 2024. On a £250,000 property, total SDLT is £15,000.
18% for basic rate taxpayers and 24% for higher rate taxpayers on the taxable gain. The gain must be reported and tax paid within 60 days of completion.
April 2027. From that point, basic rate landlords pay 22%, higher rate landlords pay 42%, and additional rate landlords pay 47% on rental profits.
No. Section 24 applies only to individual landlords. A limited company still deducts mortgage interest as a normal business expense before calculating its profit, which is the main reason many landlords hold property through a company. Weigh that against the cost of running a company and the tax on taking money out.
Section 24 measures your taxable rental profit before mortgage interest, so on paper it is higher even though your cash profit is the same. That larger figure can push you into the higher-rate band, taper your personal allowance above £100,000, or trigger the High Income Child Benefit Charge, all of which raise your bill.
You take 20% of your finance costs, mainly mortgage interest, and that amount is knocked off your final tax bill. It is the same 20% for every band, it reduces the tax you owe rather than your taxable income, and it cannot create a refund. Any credit you cannot use carries forward.
Yes, since 6 April 2025. The furnished holiday letting regime was abolished, so holiday lets now face the same Section 24 restriction as ordinary residential lets and no longer get full relief on their mortgage interest.
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James Hartley is a Chartered Management Accountant (CIMA) with more than eight years of experience in UK tax, payroll and compliance. He holds a BSc in Finance and Economics from the University of Manchester and spent his early career at a Big 4 accounting firm. He founded WhatsUK to build free UK financial calculators and guides verified against official HMRC sources. He authors every calculator and article on WhatsUK.
Sources & Official References
- GOV.UK: Income Tax relief for landlords
- GOV.UK: Capital Gains Tax on property
- HMRC: Autumn Budget 2025
Last verified:
Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.