What Section 24 did
Before April 2017 an individual landlord deducted mortgage interest from rent like any other cost, so a higher-rate taxpayer effectively got 40% relief on interest. Section 24 of the Finance (No. 2) Act 2015 phased that deduction out: 75% deductible in 2017/18, 50% in 2018/19, 25% in 2019/20 and nothing from 2020/21 (HMRC PIM2058). Instead, landlords get a reduction in their tax bill at the basic rate.
It applies to individuals, partnerships of individuals and trusts letting residential property. It does not apply to companies, which is why incorporation became a common question.
Step by step: the tax reduction
Section 274AA ITTOIA 2005 sets the calculation. For a single property business:
- Relievable amount = this year's finance costs + any unrelieved amount brought forward.
- Adjusted profits = the property profit for the year after any property losses brought forward.
- L = the lower of the two.
- If L is more than your adjusted total income (net income excluding savings and dividends, minus your personal allowance), relief is given on adjusted total income instead.
- Tax reduction = the amount relieved × the basic rate (20% in 2026/27; the 22% property basic rate from 2027/28).
- Whatever is not relieved carries forward to next year.
Example of the cap: finance costs of £20,000 against a property profit of £5,000. L is £5,000, so the reduction is £1,000 this year and £15,000 carries forward. A calculator that simply takes 20% of the interest would show £4,000.
Who pays more: basic vs higher rate
Take £12,000 of rent after costs and £8,000 of interest — a real profit of £4,000.
- With a £30,000 salary, the £12,000 is taxed at 20% and the £8,000 of interest earns a 20% credit: the rental adds £800 of tax, the same as if interest were deductible.
- With a £60,000 salary, the £12,000 is taxed at 40% but the credit is still 20%: the rental adds £3,200 of tax — 80% of the £4,000 real profit.
- The same higher-rate landlord in 2027/28 pays £3,280: 42% on the profit, 22% credit on the interest.
Because interest is not deducted, your taxable income can also cross thresholds: the personal allowance tapers away between £100,000 and £125,140, and the High Income Child Benefit Charge starts at £60,000. These are the "hidden" costs of Section 24, and the calculator includes both.
What changes in April 2027
Finance Act 2026 introduces separate property income rates of 22%, 42% and 47% for 2027/28 and moves finance cost relief to the property basic rate of 22%. Property income becomes the top slice of your income and your personal allowance is set against salary or pension first (section 6). The 2027 calculator shows the change for your figures.
Practical points
- Keep finance costs by property business: UK and overseas lettings are separate businesses, and so is your share of a partnership.
- Arrangement fees and other finance costs are restricted in the same way as interest.
- Choosing the £1,000 property allowance instead of actual expenses means no carried-forward amount is created for that year (HMRC PIM4487).
- Capital repayments are never deductible or relievable; only the cost of borrowing is.
Questions landlords ask
Is Section 24 the same as the 20% tax credit?
Section 24 is the restriction; the 20% (22% from 2027/28) tax reduction is the replacement relief under s.274A–274AA ITTOIA 2005.
Can unused finance costs be carried back?
No, only forward, to later years of the same property business.
Does Section 24 apply to commercial property?
No. The restriction applies to dwelling-related loans; commercial lettings still deduct interest.
Tax rules: UK registry v1.0.0, last reviewed 2026-09-30. Figures in the text use the default inputs above. Sources and method.