Section 24 and higher rate taxpayer landlords

Section 24 restricts the tax relief landlords can claim on residential finance costs, particularly impacting higher rate taxpayers. This guide explains its implications and how to navigate the rules.

4 min read · Updated 27 August 2026

Overview

Section 24 of the Finance (No. 2) Act 2015 significantly changed how landlords of residential properties can offset finance costs, such as mortgage interest, against their rental income. From April 2020, relief for these costs is restricted to the basic rate of income tax, effectively meaning higher rate and additional rate taxpayers no longer receive full relief. Instead, they receive a tax credit equivalent to 20% of their finance costs. This change can lead to a substantial increase in a landlord's tax liability and may even push some basic rate taxpayers into a higher tax bracket.

Why it matters

For higher rate taxpayer landlords, Section 24 directly reduces the profitability of their property investments by increasing their net tax burden. It fundamentally alters the calculation of taxable profits, sometimes giving the impression of higher income than cash flow suggests, which can affect things like student loan repayments or eligibility for benefits. Understanding this rule is crucial for accurate financial planning, tax self-assessment, and making informed decisions about property portfolio management.

Legal requirements

Landlords must declare all residential property income and allowable expenses on their self-assessment tax return.
Finance costs for residential properties, including mortgage interest, loan arrangement fees, and overdraft interest, are no longer fully deductible as an expense.
Instead of a deduction, landlords receive a 20% tax credit on qualifying finance costs.
The tax credit is capped at either 20% of the finance costs, 20% of the property profits, or 20% of the total income that exceeds the personal allowance, whichever is lower.
Landlords must keep meticulous records of all finance costs to correctly calculate the tax credit.
These rules apply to individuals, partnerships, and trusts, but not to companies, which can still deduct finance costs in full.
Landlords must ensure their self-assessment tax return correctly reflects these Section 24 calculations.
Furnished Holiday Lettings are exempt from Section 24 rules, and finance costs remain fully deductible for these properties.

Common mistakes

Assuming mortgage interest is still a fully deductible expense against rental income.
Failing to calculate the 20% basic rate tax credit correctly, leading to underpayment or overpayment of tax.
Not realising that the tax credit may be capped, resulting in less relief than expected.
Incorrectly including finance costs from Furnished Holiday Lettings under Section 24 rules.
Neglecting to keep detailed records of all interest payments and associated finance costs.
Failing to consider the impact of Section 24 on their overall income, potentially pushing them into a higher tax bracket for other income sources.
Not understanding that the gross rental income, before the finance cost credit, is used to calculate taxable income.
Assuming Section 24 applies to commercial property or properties held within a limited company structure.

Practical guidance

Thoroughly review your residential property portfolio and assess the individual impact of Section 24 on each property's profitability.
Ensure you accurately record all residential finance costs, including mortgage interest and related fees, for each tax year.
Use reputable accounting software or consult a tax advisor to help calculate your 20% basic rate tax credit correctly.
Familiarise yourself with the capping rules for the finance cost tax credit to avoid unexpected tax liabilities.
Consider your total income, including rental income, when planning your tax strategy, as Section 24 can affect your overall marginal tax rate.
Explore potential strategies such as incorporating your property portfolio, if suitable, as companies are exempt from Section 24.
If you have Furnished Holiday Lettings, ensure their finance costs are correctly treated as fully deductible expenses.
Regularly review your financial position and seek professional advice on tax planning strategies to mitigate the impact of Section 24.
Keep organised financial records, referencing our guide on Record keeping for self-assessment: what landlords need, to simplify your annual tax return.
Stay informed about Making Tax Digital for landlords, as accurate digital record-keeping will be crucial for compliance.

Frequently asked questions

What exactly is 'finance cost relief' under Section 24?

Under Section 24, 'finance cost relief' refers to the tax relief you can claim on costs like mortgage interest, loan interest, and arrangement fees for residential buy-to-let properties. Prior to April 2020, these costs were fully deductible against rental income. Now, instead of deducting them as an expense, landlords receive a tax credit equivalent to 20% of these finance costs. This primarily affects higher rate and additional rate taxpayers who previously benefited from relief at their marginal tax rate.

Does Section 24 apply to all types of rental properties?

No, Section 24 specifically applies to residential property businesses owned by individuals, partnerships, and trusts. It does not apply to commercial properties, nor does it apply to properties owned by limited companies. Crucially, furnished holiday lettings (FHLs) are also exempt from Section 24 rules, meaning landlords of qualifying FHLs can still deduct their finance costs in full against rental income. Refer to our guide on Furnished holiday lettings: recent tax changes explained for more details.

How does Section 24 affect landlords who are basic rate taxpayers?

Even basic rate taxpayers can be indirectly affected by Section 24. While they also receive a 20% tax credit, the main impact is that their gross rental income, before the finance cost credit, is added to their total income for tax purposes. This 'grossing up' of income can sometimes push a basic rate taxpayer into the higher rate tax bracket, leading to a larger overall tax bill than they might expect, or affecting other income-dependent calculations.

Can I incorporate my property portfolio to avoid Section 24?

Incorporating your property portfolio, meaning transferring ownership from you as an individual to a limited company, is one strategy some landlords consider to mitigate the effects of Section 24. Companies are not subject to Section 24 and can deduct finance costs in full. However, this is a complex decision with significant tax implications, including Stamp Duty Land Tax and Capital Gains Tax on transfer, as well as ongoing corporation tax liabilities. It requires careful professional advice. See Incorporating a property portfolio: pros and cons for a detailed discussion.

What records do I need to keep for Section 24?

You must maintain accurate and comprehensive records of all your residential finance costs. This includes mortgage statements detailing interest paid, loan agreements, statements for any loans used for property purchase or improvement, and records of any associated fees like arrangement fees. These records are essential for correctly calculating the 20% tax credit and for HMRC compliance checks. Our guide Record keeping for self-assessment: what landlords need provides further detail on necessary documentation.

Are there different Section 24 rules for Scotland, Wales, or Northern Ireland?

No, Section 24 of the Finance (No. 2) Act 2015 is a UK-wide tax measure, therefore the rules regarding the restriction of finance cost relief apply uniformly across England, Scotland, Wales, and Northern Ireland. While devolved governments have powers over certain taxes like Land and Buildings Transaction Tax in Scotland or Land Transaction Tax in Wales, income tax and the associated relief rules like Section 24 remain under the purview of the UK government and HMRC.

When did Section 24 fully come into effect?

Section 24 was introduced in the Finance (No. 2) Act 2015, and its implementation was phased in gradually over four tax years, starting from 6 April 2017. From 6 April 2020 onwards, the restriction to basic rate tax relief for residential finance costs became fully effective. This means that for the tax year 2020-21 and all subsequent years, landlords can only claim a 20% tax credit for their finance costs, with no deduction against rental income.

Can the 20% tax credit be carried forward if it exceeds my tax liability?

Yes, if the amount of finance costs for which you can claim a 20% tax credit exceeds your property profits for the year, or if it is capped by your overall income, the unused portion of the relief can be carried forward to subsequent tax years. This means you will not lose the potential tax relief, but it will be applied against future tax liabilities. It is important to track these carried-forward amounts accurately in your tax records.

Plain-English UK compliance changes, Renters' Rights Act 2025 updates and new guides — no spam, unsubscribe any time.

This guide is general information for UK landlords and letting agents, not legal advice. Rules differ across England, Wales, Scotland and Northern Ireland, so check your local requirements or take advice before acting.