Section 24 of the Finance (No. 2) Act 2015 — often nicknamed the "tenant tax" or the finance cost restriction — is arguably the biggest tax change UK landlords have faced in a generation. It changed how mortgage interest is treated, not just how much relief you get, and the difference matters enormously for anyone with a buy-to-let mortgage.
The rules were phased in gradually between the 2017/18 and 2020/21 tax years and have applied in full ever since. So for the 2025/26 and 2026/27 tax years, every mortgaged individual landlord feels the full effect. This guide explains what changed, who it hits, and the practical steps worth considering.
What is Section 24 and what does it actually do?
Section 24 stops individual landlords deducting mortgage and other finance interest as a business expense. Instead, you pay tax on your full rental income before interest, then receive a tax credit worth 20% of your finance costs. This is why turnover, not just profit, now drives your bill.
Before April 2017, a landlord simply subtracted mortgage interest from rental income and paid tax on what was left. Under Section 24, that deduction is gone. Your taxable rental profit is now calculated before finance costs, and the relief is delivered separately as a basic-rate (20%) reduction in your final tax liability.
For a basic-rate taxpayer, the maths often nets out to roughly the same place. For higher and additional-rate taxpayers, it does not — because they used to get relief at 40% or 45%, but the credit is capped at 20%.
Who does Section 24 hit hardest?
Higher-rate (40%) and additional-rate (45%) taxpayers are hit hardest, because they previously deducted interest at their marginal rate but now get only a 20% credit. Heavily mortgaged landlords, and those whose rental income tips them into a higher band, feel the biggest impact.
The restriction also catches landlords who were previously basic-rate taxpayers. Because your full rental income (before interest) is added to your other income, it can push you over the higher-rate threshold — even if your real, after-interest profit is modest. Once over that line, you face knock-on effects such as:
- Loss of some or all of your personal allowance once income exceeds £100,000 (tapered away).
- The High Income Child Benefit Charge if you or your partner cross the relevant threshold.
- A higher rate of tax on any other income stacked on top.
Landlords who own property outright, with no mortgage, are unaffected — there are no finance costs to restrict.
How does Section 24 change my tax bill in practice?
Your taxable income rises because mortgage interest is no longer deducted, then a 20% credit is applied at the end. A higher-rate landlord effectively gets relief at 20% instead of 40%, so the same mortgage interest now costs far more in real tax terms.
The worked example below is an illustrative example only, using round numbers to show the mechanism. It is not tax advice and ignores the personal allowance and other income for simplicity.
| Illustrative example (higher-rate landlord) | Old rules (pre-2017) | Section 24 (2025/26) |
|---|---|---|
| Annual rental income | £20,000 | £20,000 |
| Mortgage interest | £10,000 | £10,000 |
| Taxable rental profit | £10,000 | £20,000 |
| Tax at 40% | £4,000 | £8,000 |
| Less 20% finance cost credit | £0 | −£2,000 |
| Tax due | £4,000 | £6,000 |
In this illustration the same landlord pays £2,000 more tax under Section 24, despite earning identical rent and paying identical interest. To model your own numbers, try our free Section 24 calculator.
Does Section 24 apply to limited companies?
No. Section 24 applies only to individuals and partnerships. Companies holding property still deduct mortgage interest in full as a normal business expense before paying Corporation Tax, which is why many landlords now consider incorporating.
This is the single biggest reason for the rise in limited-company buy-to-let. Inside a company, finance costs remain fully deductible, and profits are taxed at Corporation Tax rates rather than your personal marginal rate. But incorporation is not a free lunch — it brings potential Stamp Duty Land Tax and Capital Gains Tax on transferring existing properties, plus ongoing accountancy and mortgage costs, and tax on extracting profit as dividends.
Whether a company structure helps depends on your income, portfolio size, and long-term plans. It is a decision to model carefully — you can compare the two routes with our limited company vs personal calculator — and to take professional advice on before acting.
What can landlords do about Section 24?
Common responses include reviewing your ownership structure, transferring a share of income to a lower-earning spouse, reducing leverage, or incorporating. There is no universal fix — the right move depends entirely on your circumstances, and each option carries its own tax and cost trade-offs.
Practical strategies landlords consider include:
- Spousal transfers: shifting ownership (and rental income) towards a lower-rate spouse or civil partner can reduce the overall bill, often via a Form 17 election on jointly owned property.
- Incorporation: moving properties into a limited company to restore full interest deductibility, weighed against transfer costs.
- Reducing borrowing: paying down mortgages lowers the finance costs that are now only partially relieved.
- Reviewing the portfolio: assessing whether highly leveraged, low-yield properties still make sense after tax.
Section 24 rewards careful record-keeping. Because your tax now hinges on getting income, allowable expenses and finance costs recorded accurately, clean bookkeeping is no longer optional.
How does Section 24 fit with Making Tax Digital?
From April 2026, Making Tax Digital for Income Tax begins phasing in for landlords above set income thresholds, requiring digital records and quarterly updates. Accurate finance-cost figures matter more than ever, because they feed directly into your Section 24 credit each year.
Good software makes this far easier. Keeping rental income, expenses and finance costs categorised correctly throughout the year means your Section 24 credit is calculated on solid data, not a year-end scramble. Tools such as PAM track these figures automatically and file SA105 property income digitally, so the Section 24 adjustment is handled without spreadsheets. However you keep records, the principle is the same: Section 24 makes accuracy pay.