Section 24 stops individual landlords deducting mortgage interest from rental income. Instead you get a 20% tax credit, which means higher-rate taxpayers pay tax on money that went straight to the bank. From April 2027 it gets worse, because rental income itself will be taxed at new, higher rates. The good news is that there are legitimate ways to soften the blow, and most of them come down to managing which tax band your income lands in.
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How Section 24 actually works
Before 2017, a landlord with £15,000 rent and £6,000 mortgage interest paid tax on £9,000 profit. Under Section 24, you pay tax on the full £15,000, then knock 20% of the £6,000 interest (£1,200) off your tax bill.
For a basic-rate taxpayer the maths often lands in the same place. For a higher-rate taxpayer it doesn’t. 40% tax on £6,000 of “phantom” income is £2,400, and the credit only refunds £1,200. You’re £1,200 worse off per year, per £6,000 of interest. Interest rates since 2022 have made those numbers much larger.
A worked example: the higher-rate hit
Take a higher-rate landlord with £20,000 of annual rent, £9,000 of mortgage interest and fees, and £3,000 of other running costs. Here is the same year under the old rules and under Section 24.
| Old rules (pre-2017) | Under Section 24 | |
|---|---|---|
| Rent | £20,000 | £20,000 |
| Less finance costs | −£9,000 | not deducted |
| Less other costs | −£3,000 | −£3,000 |
| Taxable profit | £8,000 | £17,000 |
| Tax at 40% | £3,200 | £6,800 |
| Less 20% finance-cost credit | — | −£1,800 |
| Tax due | £3,200 | £5,000 |
That is £1,800 more tax on exactly the same property, purely because of how the interest is treated. The extra is always 20% of your finance costs at the higher rate, so the bigger your mortgage, the bigger the gap.
The hidden trap: Section 24 can push you into higher rates
Because the gross rent counts as income, Section 24 can drag your total income over £50,270 (losing you the lower CGT rate and possibly child benefit), or over £100,000 (where your personal allowance starts disappearing). Landlords have been caught by all three without their income “really” rising at all.
Who Section 24 hits hardest
Section 24 bites hardest when three things line up: you hold property in your own name, you are a higher- or additional-rate taxpayer, and you are highly geared, meaning large mortgages relative to your rent. A basic-rate taxpayer with modest borrowing may barely feel it. A higher-rate landlord with big interest bills can lose several thousand pounds a year. The April 2027 rate rise widens that gap again, so the landlords most exposed today are the ones with the most to gain from planning ahead.
What changes in April 2027
The November 2025 Budget introduced separate tax rates for property income from April 2027: 22%, 42% and 47%. So the income Section 24 forces you to declare will also be taxed 2 percentage points harder. The Budget also changed relief ordering rules so the personal allowance is set against non-property income first where possible. If you are already close to a threshold, that combination is worth modelling now rather than in 2027.
Legitimate ways to reduce the damage
Most of these work by widening your basic-rate band or moving income out of the higher rates, which is exactly where Section 24 does its damage.
- A limited company. Companies deduct interest in full and sit outside Section 24, so for higher-rate, highly geared portfolios it is often the cleanest fix. It is not free, though. Moving property into a company can trigger stamp duty land tax and capital gains tax on the transfer, lenders charge more on company buy-to-let mortgages, and there are running costs for accounts and filings. It can still win comfortably over time, but only once the numbers are run for your specific portfolio.
- Pension contributions. A personal pension contribution extends your basic-rate band by the gross amount you pay in. Because Section 24 forces rental income into charge at your marginal rate, widening the 20% band means more of that income is taxed at 20% instead of 40%. If Section 24 has tipped you just over £50,270, a contribution sized to bring your total income back under the threshold can remove the higher-rate element. Ask your accountant to work out how much you need to pay in to stay inside the basic-rate band, because it depends on all your income for the year, not just the rent.
- Gift Aid donations. Gift Aid works the same way as a pension contribution for band purposes: it extends your basic-rate band by the grossed-up value of the gift. If you already give to charity, routing it through Gift Aid and recording it on your tax return can help keep you in the 20% band, so the same donation does double duty. Just make sure you’ve paid enough tax to cover what the charity reclaims.
- Spousal transfers. If you’re married, you can potentially move income to a lower-earning spouse and out of the higher rates. There are eligibility criteria and rules to follow, so check with your accountant before you go ahead.
- Reduce leverage where it makes sense. For some landlords, paying down the highest-rate debt beats chasing gross yield.
- Claim every cost you are entitled to. Repairs, agent fees and insurance are fully deductible and routinely forgotten. And do not overlook mortgage product and arrangement fees: these are finance costs, so they earn the same 20% tax credit as your interest. Add them to your finance-cost total every year rather than leaving them off.
What doesn’t work: ignoring it, or copying an incorporation someone else did without advice.
If Section 24 is biting, the fix is usually structural. Book a free discovery call and we’ll look at your position.
Free download: 12 Tax Deductions Property Investors Miss Out On — the tax checklist most landlords are missing.
Frequently asked questions
Does Section 24 apply to limited companies?
No. Companies deduct mortgage interest in full as a business expense, so they sit outside Section 24.
Does Section 24 apply to HMOs?
Yes. It applies to all residential lettings held personally, whatever the letting model.
I’m a basic-rate taxpayer. Can I ignore Section 24?
Not entirely. The gross-income effect can push you over thresholds you care about, such as the higher-rate band, child benefit or the personal allowance taper. Check your position each year, especially with the 2027 rate rise coming.
How do I work out what Section 24 costs me?
Take your total mortgage interest and finance fees for the year. If you’re a higher-rate taxpayer, you effectively lose 20% of that figure compared with the old rules. On £9,000 of finance costs that’s £1,800 a year. Basic-rate taxpayers usually break even, but should still check the threshold effects above.
Can pension or Gift Aid contributions really reduce a Section 24 bill?
Yes, for higher-rate taxpayers. Both extend your basic-rate band, so more of your income, including the rental income Section 24 forces into charge, is taxed at 20% rather than 40%. Your accountant can size the contribution to keep you inside the band.
Is it worth moving my properties into a limited company?
It depends on your rates, gearing and how long you plan to hold. A company removes Section 24 entirely, but transferring can trigger stamp duty and capital gains tax, and company mortgages cost more. There are also some valuable reliefs that may apply, so check with your accountant. It is a numbers exercise, so model it before you act.
