How Section 24 Actually Affects UK Landlords — Worked Examples at Every Tax Band

Published April 2026 · 9 min read · By Solofold

Section 24 is the single biggest change to UK landlord taxation in a generation. Since April 2020, individual landlords can no longer deduct mortgage interest from rental income. Instead, you receive a basic rate tax credit of just 20% — regardless of whether you actually pay tax at 20%, 40%, or 45%.

If you're a basic rate taxpayer, the impact is broadly neutral. If you're a higher or additional rate taxpayer, or if your rental income pushes you across a tax band threshold, Section 24 can cost you thousands of pounds per year in extra tax on the same real-world profit.

This guide explains the mechanics in plain English with three worked examples showing the real cost at different income levels.

The old rules vs the new rules

Before Section 24: Mortgage interest was a deductible expense. You subtracted it from your rental income before calculating tax. If you earned £20,000 in rent and paid £8,000 in mortgage interest, you only paid tax on £12,000.

After Section 24: Mortgage interest is no longer deductible. You pay tax on the full rental income (£20,000), then receive a tax credit equal to 20% of your mortgage interest (20% × £8,000 = £1,600). The credit reduces your tax bill, but not by as much as the old deduction did — especially at higher rates.

Example 1: Basic rate taxpayer (broadly neutral)

Sarah earns £30,000 from employment. She has one rental property generating £12,000 income with £5,000 allowable expenses and £4,000 mortgage interest.

For basic rate taxpayers whose total income stays within the basic rate band (under £50,270 for 2025-26 — check GOV.UK for the latest threshold), the maths works out the same. But watch what happens when rental income pushes you across the threshold.

Example 2: Pushed into higher rate (this is where it hurts)

Emma earns £44,000 from employment. She has £12,000 rental income with £8,000 mortgage interest.

Emma's real-world profit hasn't changed. But Section 24 inflates her taxable income, pushes her into the higher rate band, and costs her over £1,100 per year in extra tax. This is the most common scenario that catches landlords off guard.

Example 3: Higher rate taxpayer with large mortgage

James earns £60,000 from employment. He has £30,000 rental income, £5,000 allowable expenses, and £15,000 mortgage interest.

For every £100 of mortgage interest, James used to save £40 in tax (at his 40% rate). Now he saves only £20 (the fixed 20% credit). That gap across £15,000 of interest equals £3,000 per year.

The hidden trap: Personal Allowance taper

If your total taxable income exceeds £100,000, you start losing your £12,570 Personal Allowance at £1 for every £2 above the threshold. Under the old rules, mortgage interest reduced your income before this calculation. Under Section 24, it doesn't — so landlords with employment income near £100,000 can lose part or all of their Personal Allowance due to inflated rental profits, creating an effective marginal rate of 60% on income between £100,000 and £125,140.

Who is NOT affected?

Limited companies — can still deduct mortgage interest in full. This is why some landlords consider incorporation, though the costs (stamp duty, CGT, higher mortgage rates, extraction tax) can outweigh the benefits.

Commercial property — offices, shops, warehouses remain unaffected.

Note on Furnished Holiday Lets: The FHL regime was abolished from April 2025. Former FHLs now fall under Section 24 like every other residential let.

What can you actually do about it?

1. Know your exact exposure. Run your numbers through our free rental tax calculator — it shows old-rules vs new-rules side by side.

2. Maximise allowable expenses. Every deductible expense reduces your taxable profit. Repairs, letting fees, insurance, ground rent, and accountancy fees all count.

3. Review your mortgage structure. Interest-only vs repayment affects your finance costs figure each year.

4. Consider pension contributions. These reduce adjusted net income, potentially keeping you below the higher rate threshold.

5. Get specialist advice before incorporating. Don't transfer properties to a company without a full break-even analysis from a qualified property tax accountant.

MTD is coming for landlords too

From April 2026, landlords with combined gross rental and self-employment income over £50,000 must comply with Making Tax Digital for Income Tax — digital record-keeping and quarterly submissions to HMRC. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Organised records now will make this transition much simpler.

Related resources

→ Free UK Rental Tax Calculator

→ SA103S Expense Categories Explained

→ Payments on Account Explained

→ All Solofold products