How Section 24 Is Reducing Your Rental Profits in 2026/27

Section 24 reduces your rental profits by stopping you from deducting mortgage interest from rental income, replacing that deduction with a tax credit worth only 20% of the interest paid. For higher-rate and additional-rate landlords, the result is a materially larger income tax bill on the same rental income. The Section 24 landlord tax UK rules matter because the restriction is now fully in force for the 2026/27 tax year and quietly erodes the net return on every geared buy-to-let property. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, works with landlords across the country to measure and mitigate this impact. This article explains how the finance costs restriction works, shows the effect on basic-rate and higher-rate taxpayers with worked figures, and outlines the main planning options, including incorporation.

Key Takeaways

• Section 24 fully removes the ability to deduct mortgage interest from rental income and replaces it with a 20% basic-rate tax credit for the 2026/27 tax year.
• A higher-rate landlord paying £9,000 in mortgage interest can pay roughly £1,800 more income tax per year under Section 24 than under the old rules.
• Basic-rate taxpayers are broadly unaffected in cash terms, but the added notional income can push them into the 40% band, where the finance costs restriction bites.
• The 20% mortgage interest relief credit applies to individual landlords only and does not apply to properties held inside a limited company.
• Section 24 can also reduce your personal allowance, trigger the High Income Child Benefit Charge, and increase student loan repayments by inflating your taxable income.
• Incorporation, remortgaging strategy, and profit-sharing between spouses are the most common ways landlords reduce their exposure to the restriction.

What is Section 24 and how does the finance costs restriction work?

Section 24 is the rule that restricts tax relief on residential landlords' finance costs to the basic rate of 20%. Introduced by the Finance (No. 2) Act 2015 and phased in between 2017 and 2020, it now applies in full. Instead of deducting mortgage interest as an expense before calculating taxable profit, individual landlords must add it back, calculate income tax on the higher figure, and then claim a tax reducer equal to 20% of the allowable finance costs.

"Finance costs" covers more than the mortgage. It includes interest on buy-to-let mortgages, interest on loans to buy furnishings, and fees incurred when taking out or repaying a mortgage. The finance costs restriction applies only to residential lettings held by individuals and partnerships, not to commercial property or property held within a company.

How does Section 24 affect a higher-rate landlord in 2026/27?

A higher-rate landlord pays income tax on rental income before mortgage interest is deducted, so Section 24 increases the effective tax rate on a geared property. Consider a landlord who is a 40% taxpayer with the following figures for 2026/27:

• Rental income: £24,000
• Mortgage interest: £9,000
• Other allowable expenses: £3,000

Under the pre-Section 24 rules, taxable profit would have been £12,000 (£24,000 less £9,000 less £3,000), giving tax of £4,800 at 40%. Under the 2026/27 finance costs restriction, the mortgage interest cannot be deducted. Taxable profit becomes £21,000 (£24,000 less £3,000), producing tax of £8,400. The landlord then claims a 20% credit on the £9,000 interest, worth £1,800, reducing the bill to £6,600.

The higher-rate landlord therefore pays £6,600 instead of £4,800, an extra £1,800 in income tax on identical rental income. The more heavily geared the property, the larger the gap.

Are basic-rate landlords affected by Section 24?

Basic-rate landlords are broadly unaffected in pure cash terms, because a 20% taxpayer receives relief at the same 20% rate whether interest is deducted as an expense or given as a credit. Using the same £24,000 income, £9,000 interest and £3,000 expenses, a basic-rate landlord pays 20% on £21,000, which is £4,200, less the £1,800 credit, leaving £2,400. That matches the £2,400 they would have paid on £12,000 profit under the old rules.

The real danger is that Section 24 inflates your taxable income by the amount of the disallowed interest. Adding £9,000 of notional income can push a landlord who was previously just inside the basic-rate band over the £50,270 higher-rate threshold. Once income crosses that line, part of the profit is taxed at 40% while relief remains capped at 20%, and the mortgage interest relief landlord shortfall appears.

What are the wider consequences of the Section 24 landlord tax UK rules?

Section 24 raises your total taxable income, which can trigger tax consequences well beyond the letting itself. Because the disallowed interest inflates your income figure, it can reduce your personal allowance where income exceeds £100,000, trigger the High Income Child Benefit Charge once income passes £60,000, and increase income-based student loan repayments.

How can landlords reduce the impact of Section 24?

Landlords can reduce the impact of Section 24 through incorporation, ownership planning between spouses, and reviewing their borrowing structure. Holding property through a limited company removes the finance costs restriction entirely, because companies deduct mortgage interest in full against profits and pay corporation tax, currently 19% to 25% depending on profit level. Incorporation is not automatically beneficial, as it can trigger capital gains tax and stamp duty land tax on transfer, so it requires careful modelling. Transferring a share of a property to a lower-earning spouse can also move rental profit into a lower tax band and reduce the household's exposure. Each route carries trade-offs, so professional advice is essential before acting.

Frequently Asked Questions

Does Section 24 apply to all landlords?

Section 24 applies to individual and partnership landlords letting residential property in the UK. It does not apply to companies, which deduct mortgage interest in full, nor to commercial property lettings. If you own residential buy-to-let property personally and have a mortgage, the finance costs restriction affects how your rental profit is taxed in 2026/27.

How much is the Section 24 tax credit worth?

The Section 24 tax credit is worth 20% of your allowable residential finance costs, including mortgage interest. For example, £9,000 of mortgage interest produces a tax reducer of £1,800. This 20% credit replaces the previous ability to deduct interest in full, which is why higher-rate landlords now face a larger income tax bill.

Can I avoid Section 24 by using a limited company?

Holding buy-to-let property in a limited company removes the Section 24 restriction, because companies deduct mortgage interest as a normal business expense. However, transferring existing property into a company can create capital gains tax and stamp duty land tax charges, and company mortgages often carry higher rates. Incorporation suits some portfolios and not others, so model it carefully first.

Did Section 24 change for the 2026/27 tax year?

Section 24 did not change for 2026/27; the restriction remains fully in force at the 20% basic-rate credit that applied once phase-in completed in 2020. What can change year to year is your own position, as frozen tax thresholds and rising interest rates push more landlords into higher-rate territory where the finance costs restriction has the greatest effect.

How Blue Tick Can Help

Blue Tick Accountants helps landlords measure the exact cost of Section 24 on their portfolio and model whether incorporation, spousal ownership changes, or a borrowing review would improve their net return. As a specialist tax advisory practice, Blue Tick Accountants provides clear, figures-led advice tailored to your circumstances rather than generic rules of thumb. Head to our website and book a meeting now.

Conclusion

Section 24 quietly reduces the profitability of every geared buy-to-let property held personally, with higher-rate landlords bearing the heaviest cost and basic-rate landlords at risk of being pushed into the 40% band. The most valuable step you can take is to calculate your own exposure precisely and review whether a change in ownership structure would help. Acting on accurate figures, rather than assumptions, is what protects your rental returns.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps landlords across the UK manage buy-to-let taxation. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: 5 Ways Landlords Can Reduce the Tax Hit from Section 24.

Related reading: Section 24 vs Company Ownership: Which Property Structure Wins on Tax?.