Mortgage Interest & Finance Costs Explained: How Section 24 Works for UK Landlords (2025/26)

Jun 11, 2025

Mortgage Interest & Finance Costs Explained: How Section 24 Works for UK Landlords (2025/26)

Why Mortgage Interest Relief Changed Everything

For many years, landlords could deduct the full cost of mortgage interest and finance charges from their rental income before calculating taxable profits. This changed with the introduction of Section 24 of the Finance (No. 2) Act 2015, which phased in between 2017 and 2020.

Now, landlords of residential property can no longer claim full deductions. Instead, they receive a basic rate (20%) tax credit on their finance costs.

This shift has increased tax bills for higher and additional rate taxpayers and remains one of the biggest ongoing compliance and planning issues for UK landlords.

This guide explains exactly how Section 24 works, who it applies to, and how landlords can plan around it.

How Section 24 Restricts Mortgage Interest Relief

From April 2020 onwards (fully phased in):

Individuals and partnerships letting out residential property can no longer deduct mortgage interest, overdrafts, or other finance costs when calculating rental profits.
Instead, they receive a 20% tax credit against their Income Tax liability for these costs.
The relief is capped at the lower of:
- Finance costs incurred,
- Property business profits, or
- Total income (excluding savings/dividends) above the personal allowance.

Limited companies are not affected. They can still deduct all finance costs as a normal business expense against rental profits.

Worked Example: The Tax Credit in Practice

A landlord receives £20,000 rental income and pays £8,000 mortgage interest.
Pre-2020 rules: taxable profit would be £12,000.
Post-Section 24 rules: taxable profit is £20,000 (no deduction).
They then receive a 20% tax credit on £8,000 interest = £1,600.
A higher-rate taxpayer (40%) would pay significantly more tax than under the old rules.

Common Pitfalls for Landlords

Assuming relief is still a deduction — leading to underpaid tax and HMRC penalties.
Not budgeting for the extra liability — particularly higher-rate taxpayers.
Confusing property vs corporate rules — companies remain unaffected, but individuals often apply the wrong treatment.
Overlooking finance costs other than mortgages — e.g. loans to buy furnishings, overdraft fees, or credit cards used for property expenses also fall within the restriction.

Planning Considerations

Landlords can mitigate Section 24’s impact by:

Using company structures — incorporating can restore full relief for finance costs (though it creates other tax implications, e.g. higher SDLT, CGT on incorporation).
Balancing salary and dividends — directors of property companies can use tailored pay structures to optimise tax.
Careful use of allowances — e.g. £1,000 property allowance, replacement of domestic items relief.
Professional forecasting — ensuring cash flow accounts for higher Income Tax bills.

How Wexley Protects Landlords

At Wexley & Associates, we ensure landlords:

Correctly apply the Section 24 restriction.
Identify whether incorporation is worthwhile.
Plan for tax liabilities in advance to avoid surprises.
Optimise rental structures to balance reliefs and income.

With the right support, landlords can remain fully compliant while minimising unnecessary tax exposure.

Don’t Let Section 24 Erode Your Profits

Mortgage interest restrictions continue to catch landlords off guard. Without planning, higher tax bills can eat into rental returns — but the right strategy can make all the difference.

Contact Wexley & Associates today for expert landlord tax advice tailored to your property portfolio.

References

HMRC Property Income Manual: PIM2056 — Restriction for Income Tax
HMRC Self Assessment Helpsheet HS340 (2025): Interest & Alternative Finance Payments
HMRC: Tax on property income
Related Wex Insider article: Allowable Expenses & Replacement of Domestic Items Explained for Landlords

Mortgage Interest & Finance Costs Explained: How Section 24 Works for UK Landlords (2025/26)

Why Mortgage Interest Relief Changed Everything

Now, landlords of residential property can no longer claim full deductions. Instead, they receive a basic rate (20%) tax credit on their finance costs.

This shift has increased tax bills for higher and additional rate taxpayers and remains one of the biggest ongoing compliance and planning issues for UK landlords.

This guide explains exactly how Section 24 works, who it applies to, and how landlords can plan around it.

How Section 24 Restricts Mortgage Interest Relief

From April 2020 onwards (fully phased in):

Individuals and partnerships letting out residential property can no longer deduct mortgage interest, overdrafts, or other finance costs when calculating rental profits.
Instead, they receive a 20% tax credit against their Income Tax liability for these costs.
The relief is capped at the lower of:
- Finance costs incurred,
- Property business profits, or
- Total income (excluding savings/dividends) above the personal allowance.

Limited companies are not affected. They can still deduct all finance costs as a normal business expense against rental profits.

Worked Example: The Tax Credit in Practice

A landlord receives £20,000 rental income and pays £8,000 mortgage interest.
Pre-2020 rules: taxable profit would be £12,000.
Post-Section 24 rules: taxable profit is £20,000 (no deduction).
They then receive a 20% tax credit on £8,000 interest = £1,600.
A higher-rate taxpayer (40%) would pay significantly more tax than under the old rules.

Common Pitfalls for Landlords

Assuming relief is still a deduction — leading to underpaid tax and HMRC penalties.
Not budgeting for the extra liability — particularly higher-rate taxpayers.
Confusing property vs corporate rules — companies remain unaffected, but individuals often apply the wrong treatment.
Overlooking finance costs other than mortgages — e.g. loans to buy furnishings, overdraft fees, or credit cards used for property expenses also fall within the restriction.

Planning Considerations

Landlords can mitigate Section 24’s impact by:

Using company structures — incorporating can restore full relief for finance costs (though it creates other tax implications, e.g. higher SDLT, CGT on incorporation).
Balancing salary and dividends — directors of property companies can use tailored pay structures to optimise tax.
Careful use of allowances — e.g. £1,000 property allowance, replacement of domestic items relief.
Professional forecasting — ensuring cash flow accounts for higher Income Tax bills.

How Wexley Protects Landlords

At Wexley & Associates, we ensure landlords:

Correctly apply the Section 24 restriction.
Identify whether incorporation is worthwhile.
Plan for tax liabilities in advance to avoid surprises.
Optimise rental structures to balance reliefs and income.

With the right support, landlords can remain fully compliant while minimising unnecessary tax exposure.

Don’t Let Section 24 Erode Your Profits

Mortgage interest restrictions continue to catch landlords off guard. Without planning, higher tax bills can eat into rental returns — but the right strategy can make all the difference.

Contact Wexley & Associates today for expert landlord tax advice tailored to your property portfolio.