Section 24 Explained: How Mortgage Interest Tax Relief Really Works for Landlords in 2026/27

Ask a landlord what has squeezed their returns hardest over the past decade and Section 24 will come up before interest rates do. Since April 2020, individual landlords have been unable to deduct mortgage interest from rental income before working out their tax. Instead, you pay income tax on the full rental income and claim back a flat 20% of your finance costs as a credit. For higher-rate taxpayers, that is a materially worse deal, and in 2026/27 it now catches furnished holiday lets too.

Tax depends on your personal circumstances, and this article is general information rather than advice. Here is how the rules actually work, who feels them most, and the numbers behind the headlines.

Whether you're a first-time landlord or growing a portfolio, understanding the tax implications is just as important as choosing the right property. If you're still purchasing an investment property, our guide to buy-to-let conveyancing explains how the legal process differs from a standard residential purchase.

What Section 24 changed

Before the rules were phased in, mortgage interest was simply an expense. A landlord collecting £12,000 in rent and paying £6,000 in interest was taxed on £6,000 of profit. Under Section 24, that landlord is taxed on the full £12,000, then receives a tax credit worth 20% of the £6,000 interest. For a basic-rate taxpayer the two systems produce the same bill. For anyone paying 40% or 45%, they do not.

Who feels it most

The rules only apply to landlords who own property in their personal name. Companies still deduct interest as a business expense, which is a large part of why incorporation has become such a common conversation.

Higher-rate taxpayers are hit hardest, and there is a second, sneakier effect: because your full rental income now counts towards your total taxable income, Section 24 can push a basic-rate taxpayer over the £50,270 higher-rate threshold, which has been frozen along with the £12,570 personal allowance into 2026/27. You can end up paying higher-rate tax caused by income you never actually kept, because much of it went to your lender.

If you're considering purchasing another investment property, it's also worth understanding the additional costs involved. Our guide to stamp duty on second properties explains the additional property surcharge and what you'll pay.

A worked example

Take a higher-rate taxpayer with one rental property: £12,000 a year in rent and £6,000 a year in mortgage interest, ignoring other expenses for simplicity.

Under the old rules, tax was due on £6,000 of profit at 40%: £2,400. Under Section 24, tax is due on the full £12,000 at 40%, which is £4,800, minus a credit of 20% of the £6,000 interest, which is £1,200. The bill is £3,600, exactly £1,200 a year more than under the old system. The higher your mortgage interest, the wider that gap grows, which is why heavily leveraged landlords have felt the change most sharply.

Furnished holiday lets lost their exemption

Until recently, furnished holiday lets sat outside Section 24 and their owners deducted mortgage interest in full. That ended when the furnished holiday lettings tax regime was abolished from 6 April 2025. Holiday-let owners now get the same flat 20% credit as every other individual landlord, a change worth checking carefully if you own one and have not revisited your figures since.

What you can still deduct

Section 24 removed relief on finance costs, not on expenses generally, and plenty of landlords overpay by forgetting the difference. Day-to-day running costs remain fully deductible from rental income before tax is calculated, including letting agent fees, landlord insurance, repairs and maintenance (though not improvements), accountancy fees for the rental business, and services like gas safety certificates.

The distinction between a repair and an improvement matters: replacing a broken boiler like for like is a repair and deductible, while upgrading a kitchen well beyond its original standard is capital expenditure and is not, though it may reduce capital gains tax when you eventually sell. Keeping clean records of both categories pays for itself, and it is exactly the sort of housekeeping that softens the blow of a system that now taxes revenue rather than profit for anyone with a mortgage.

Is a limited company the answer?

Sometimes, but not automatically. A company deducts mortgage interest in full and pays corporation tax on profits, which can work out better for higher-rate taxpayers who plan to hold property long term. Moving a personally owned property into a limited company is treated as a sale and purchase for tax purposes. That means it can trigger capital gains tax, Stamp Duty Land Tax and new legal work. Before making any decision, it's worth understanding the conveyancing process involved. Read our complete guide to conveyancing to understand how property transfers work.

We weigh the trade-offs in our separate article on moving your buy-to-lets into a limited company, and things to consider include:

• Incorporation tends to suit portfolio landlords with larger interest bills and long horizons, where annual savings eventually outweigh the one-off transfer costs.
• Landlords with one modestly geared property, or those close to selling, often find the transfer costs are never recovered.

The bottom line

Section 24 means individual landlords pay tax on full rental income and claim a flat 20% credit on finance costs. Basic-rate taxpayers generally break even; a higher-rate landlord with £6,000 of annual interest pays about £1,200 a year more, and holiday lets are now included. If restructuring or selling is on your mind, the legal work matters as much as the tax maths, so compare conveyancing quotes before you commit either way.