The 20% Tax Credit Under Section 24: How It Works and What It's Worth

The 20% tax credit under Section 24 replaced full mortgage interest relief for landlords, meaning you can no longer deduct finance costs from rental income and instead receive a flat 20% credit against your final tax bill. This single change is the core of Section 24 landlord tax in the UK, and it quietly increases the tax paid by every higher-rate and additional-rate landlord who borrows to buy property. For basic-rate taxpayers the effect is broadly neutral, but for anyone paying tax above 20% the difference can run into thousands of pounds a year. This article, from Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, explains how the 20% credit is calculated, what it is worth in real money, and which planning options can soften the blow, with worked examples for the 2026/27 tax year.

Key Takeaways

• Section 24 replaced the deduction of mortgage interest with a 20% tax credit, so finance costs no longer reduce a landlord's taxable rental profit.
• The finance costs restriction gives every landlord the same 20% credit regardless of their tax band, which is why higher-rate taxpayers lose out.
• A higher-rate landlord effectively receives relief at 20% on mortgage interest instead of 40%, doubling the real cost of every £1 of interest compared with the old rules.
• Section 24 can push a landlord into a higher tax band because rental income is now taxed on the gross figure before finance costs.
• Mortgage interest relief for landlords now applies to residential lets only; furnished holiday lets and company-owned property follow different rules.
• Incorporating a portfolio into a limited company can restore full interest deductibility, but triggers potential capital gains tax and stamp duty land tax on transfer.

What is the 20% tax credit under Section 24?

The 20% tax credit under Section 24 is a fixed reduction to your income tax bill equal to 20% of your allowable residential finance costs, given instead of deducting those costs from rental income. Section 24 of the Finance (No. 2) Act 2015 phased out the old treatment between April 2017 and April 2020, and the restriction has applied in full ever since. Under the current rules you calculate your rental profit without subtracting mortgage interest, arrive at your income tax liability, and then reduce that liability by 20% of the interest you paid. The credit is capped at the lower of your finance costs, your property profits, or your total taxable income, so it cannot create a repayable loss. For a basic-rate taxpayer the outcome mirrors the old system, because relief was always given at 20%. For anyone paying tax at 40% or 45%, the finance costs restriction is where the additional tax arises.

How does the finance costs restriction affect a basic-rate landlord?

A basic-rate landlord is largely unaffected by the finance costs restriction because the 20% credit matches the 20% rate at which their income is taxed. Consider Priya, who earns £30,000 from employment and receives £12,000 in rent, with £6,000 of mortgage interest. Her rental profit before finance costs is £12,000 (assume no other expenses for simplicity). Added to her salary, her income stays within the basic-rate band. She pays 20% income tax on the £12,000 rental profit, which is £2,400, and then receives a 20% credit on her £6,000 interest, worth £1,200. Her net tax on the property is £1,200. Under the old rules she would have deducted the £6,000 interest first, taxed the remaining £6,000 profit at 20%, and paid £1,200. The result is identical, which is why Section 24 landlord tax in the UK bites hardest higher up the income scale.

What does Section 24 cost a higher-rate landlord?

A higher-rate landlord loses out under Section 24 because they receive relief on mortgage interest at only 20% while paying tax on rental profit at 40%. Take James, who earns £60,000 from employment and receives the same £12,000 rent with £6,000 of mortgage interest. Because finance costs are no longer deductible, his full £12,000 rental profit is taxed at 40%, producing £4,800 of tax. He then receives the 20% credit on his £6,000 interest, worth £1,200, leaving net tax of £3,600. Under the pre-Section 24 rules he would have deducted the £6,000 interest, taxed the remaining £6,000 at 40%, and paid £2,400. Section 24 has therefore cost James an extra £1,200 for the year on this property alone. The larger the mortgage, the wider the gap. The wider position is set out in our guide to tax on rental income.

Can Section 24 push you into a higher tax band?

Yes, Section 24 can push a landlord into a higher tax band because rental income is now added to your other income in full, before any finance costs are taken into account. A landlord whose combined income previously sat just below the £50,270 higher-rate threshold can be tipped over it once gross rents are counted, exposing part of their income to 40% tax. The same mechanism can restrict the personal allowance for those approaching £100,000, or trigger the High Income Child Benefit Charge. This knock-on effect is often more expensive than the headline interest restriction itself, and reviewing your total income position before the 5 April year end is the practical way to manage the risk.

What planning options reduce the impact of Section 24?

The main planning options to reduce the impact of the finance costs restriction are incorporation, reviewing property ownership between spouses, and cutting borrowing where it makes commercial sense. Holding property through a limited company restores full deductibility of mortgage interest, because Section 24 applies only to individuals, though companies pay corporation tax on profits and further tax when funds are extracted. Transferring a share of a property to a lower-earning spouse can move rental profit into a lower tax band. Repaying part of a mortgage, or choosing lower-geared purchases, reduces the interest that is now only partially relieved. Each route carries trade-offs: incorporation can trigger capital gains tax and stamp duty land tax on the transfer, and spousal transfers must reflect genuine beneficial ownership, so professional advice ensures the numbers work before you act.

Frequently Asked Questions

What is the Section 24 20% tax credit?

The Section 24 20% tax credit is a reduction to a landlord's income tax bill equal to 20% of their residential mortgage interest and other finance costs. It replaced the previous system where landlords deducted interest from rental income. The credit is the same for everyone, which is why higher-rate taxpayers pay more tax than they did before Section 24 applied.

Does Section 24 affect basic-rate taxpayers?

Section 24 has little effect on basic-rate taxpayers because the 20% credit matches the 20% rate at which their rental profit is taxed. The real cost falls on higher-rate and additional-rate landlords, who are taxed on profit at 40% or 45% but receive relief on their mortgage interest at only 20%, doubling the effective cost of borrowing.

How do I calculate the Section 24 tax credit?

To calculate the Section 24 tax credit, work out your rental profit without deducting mortgage interest, add it to your other income, and calculate your income tax as normal. Then reduce your tax bill by 20% of your allowable finance costs. The credit is capped at the lowest of your finance costs, your property profits, or your total taxable income.

Does Section 24 apply to limited companies?

Section 24 does not apply to limited companies. Companies deduct mortgage interest in full against rental profits before paying corporation tax, which is why some landlords consider incorporating. However, transferring property into a company can trigger capital gains tax and stamp duty land tax, and extracting profits creates further tax, so incorporation is not automatically beneficial.

Can Section 24 increase my overall tax bill beyond the interest restriction?

Yes. Because gross rental income is added to your other income before finance costs, Section 24 can push you into a higher tax band, restrict your personal allowance above £100,000, or trigger the High Income Child Benefit Charge. These knock-on effects can cost more than the interest restriction itself and are easy to overlook without a full income review.

How Blue Tick Can Help

Blue Tick Accountants helps landlords across the UK measure the exact cost of Section 24 on their portfolio and model whether incorporation, spousal transfers, or reduced gearing would leave them better off. Every landlord's position turns on their income, borrowing, and long-term plans, so the answer is never one-size-fits-all. Head to our website and book a meeting now.

Conclusion

Section 24 does not change what you earn from property, but it changes how that income is taxed, and higher-rate landlords feel it most. The 20% credit gives everyone the same relief regardless of tax band, so the more you borrow and the higher your income, the greater the cost. Reviewing your total income position before the 5 April year end, and testing planning options such as incorporation against their upfront costs, is the surest way to keep your buy-to-let returns intact.

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, limited company owners and the self-employed across the UK. 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.