Mortgage Interest Relief for UK Landlords — Section 24 Reality
Until 2017, UK buy-to-let landlords deducted mortgage interest from rental income before tax. Section 24 of the Finance (No. 2) Act 2015 changed that — and most landlords still don’t fully grasp the implications. Here’s the 2026 picture.
What Section 24 Did
Before 2017: full mortgage interest deduction against rental income.
After full phase-in (2020): mortgage interest can no longer be deducted from rental income. Instead, you get a 20% tax credit on the interest amount.
For a basic-rate taxpayer, this is roughly cost-neutral. For higher and additional-rate taxpayers (40% and 45% brackets), it’s a major hit.
The Worked Example
Property: £350,000 BTL with a £200,000 mortgage at 5.5% interest.
- Annual mortgage interest: £11,000
- Rental income: £18,000/year
- Other allowable expenses: £4,000
Under the old rules (pre-2017):
- Rental profit: £18,000 − £11,000 − £4,000 = £3,000
- Higher-rate tax (40%): £1,200
- Net cash position: £1,800
Under Section 24 (2026):
- Rental profit for tax: £18,000 − £4,000 = £14,000 (mortgage interest NOT deducted)
- Higher-rate tax (40%): £5,600
- Tax credit at 20% of interest: £11,000 × 20% = £2,200
- Net tax due: £5,600 − £2,200 = £3,400
- Net cash position: £18,000 − £11,000 − £4,000 − £3,400 = −£400
The same property that produced £1,800 profit under old rules now produces a £400 loss for a higher-rate taxpayer. This is why so many small landlords sold up between 2017 and 2023.
Who Avoids Section 24
- Limited company landlords — Section 24 doesn’t apply to limited companies. Mortgage interest remains fully deductible.
- Basic-rate taxpayers — the 20% credit roughly matches what they’d save deducting interest. Effectively unaffected.
- Furnished holiday lets (FHL) — different rules; deductions still allowed under FHL rules.
The Limited Company Migration
Many landlords incorporated their BTL portfolios after 2017 to avoid Section 24. Trade-offs:
- Pros: Full mortgage interest deduction, retained profits taxed at corporate rate (25% in 2026), more flexible dividends.
- Cons: Mortgage rates for limited company BTL are 0.5%–1.0% higher; transferring properties triggers SDLT and CGT; ongoing accountancy costs (£500–£1,500/year per company).
For a single small portfolio of 1–2 properties, transferring to a limited company often doesn’t make sense — costs exceed savings. For 3+ properties held by higher-rate taxpayers, incorporation usually wins.
Real-Cost Calculation Steps
Before keeping/buying a BTL property in 2026, calculate:
- Annual rental income (post-vacancy adjustment)
- Annual mortgage interest
- Other expenses (insurance, repairs, management, void allowance)
- Calculate rental profit for tax purposes (income − non-interest expenses)
- Tax at marginal rate, then add back 20% interest tax credit
- Final cash flow = income − interest − expenses − net tax
Many BTLs that worked in 2016 don’t work in 2026 with Section 24 plus higher mortgage rates.
The Exit Cost
If you want out of a BTL portfolio in 2026:
- CGT on the gain (24% for higher-rate, 18% for basic-rate)
- Possible Section 24 implications on the year of sale
- SDLT impact for the buyer (the 5% supplement makes BTL less attractive to buyers)
Bottom Line
Section 24 effectively pushed casual BTL investors out of the market. For 2026 landlords, the maths usually only works as:
- Limited company structure (avoiding Section 24)
- Cash purchases (no interest, no Section 24 issue)
- Basic-rate taxpayer households where the 20% credit is approximately neutral
Anyone else holding a leveraged BTL should run the full Section 24 calculation each year — many are losing money they think they’re making.
