Landlords who own property personally pay income tax on their rental profit, but since the Section 24 rule was fully phased in they cannot deduct mortgage interest from that profit. Instead they get a tax reduction worth 20% of the interest, the basic rate. For a basic-rate taxpayer the result is much the same as the old system, but for a higher-rate taxpayer the tax bill is noticeably higher.
Note: this is general information, not tax advice. The figures are estimates for 2026/27 and assume a simple personally owned property. Landlord tax has many exceptions, so check GOV.UK or speak to a qualified accountant before making decisions.
How rental income is taxed
If you let property in your own name, the profit is treated as income and added to your other income, such as a salary, for the tax year. It is then taxed at the usual rates: in England, Wales and Northern Ireland that means 20% on income up to £50,270 once the £12,570 Personal Allowance is used, 40% up to £125,140, and 45% above that. UK income tax explained: bands, allowance and how it's worked out explains the bands. Scotland has its own rates for non-savings income, and rental income is taxed using those.
Profit is your rent received less the allowable expenses of running the let. Those are the costs incurred wholly and exclusively for the letting, such as letting agent fees, buildings and landlord insurance, repairs and maintenance, ground rent and service charges, and accountancy fees. Improvements that add something new are usually capital costs rather than expenses, and the line between a repair and an improvement is a common source of mistakes. Check the GOV.UK guidance for landlords before you claim.
There is also a property allowance of £1,000. If your gross rental income is within it you may not need to declare it, and if you use it you cannot also deduct expenses. For most buy-to-let landlords with mortgages, claiming actual expenses is better, so the allowance matters mainly for small, occasional lets.
What Section 24 changed
Before the change, a landlord deducted mortgage interest as an expense, so tax was charged on rent minus costs minus interest. Section 24 of the Finance (No. 2) Act 2015 phased that out between April 2017 and April 2020. Since 2020/21 mortgage interest and other finance costs are not deducted when working out the profit. Tax is charged on rent minus costs only, and a basic-rate tax reduction is given separately.
The reduction is calculated at the basic rate of income tax, which GOV.UK gives as 20%, and applies to the lowest of three amounts: your finance costs for the year, the profits of your property business, or your income above the Personal Allowance. It cannot create a refund. If one of those limits is lower than your finance costs, the difference is carried forward to future years.
So the effect of the change is: higher profit on paper, higher tax on that profit, and a 20% credit for the interest. For a basic-rate taxpayer, the credit exactly cancels the extra tax, so the outcome matches the old rules. For a higher-rate taxpayer, the tax on the extra profit is at 40% but the credit is only 20%, so the interest is relieved at half the rate.
A worked example: the same property at different tax rates
Take the example the House of Calculator buy-to-let tool uses. A flat bought for £250,000 lets at £1,200 a month, with 5% of the year empty, a 10% letting agent fee and £1,500 of running costs. The owner has a £150,000 interest-only mortgage at 5.5%.
- Rent collected: £1,200 × 12 × 95% = £13,680
- Agent fees: 10% × £13,680 = £1,368
- Running costs: £1,500
- Profit before finance costs: £13,680 − £1,368 − £1,500 = £10,812
- Mortgage interest: £150,000 × 5.5% = £8,250
Under Section 24 the rental profit for tax is £10,812, and the tax reduction is 20% × £8,250 = £1,650. Here is the result at different rates, with the figures from the engine:
| Tax rate on rental income | Tax on £10,812 | Less 20% interest credit | Tax payable | Cash after tax |
|---|---|---|---|---|
| 0% (no tax) | £0 | £0 | £0 | £2,562 |
| 20% | £2,162.40 | £1,650 | £512.40 | £2,049.60 |
| 40% | £4,324.80 | £1,650 | £2,674.80 | −£112.80 |
| 45% | £4,865.40 | £1,650 | £3,215.40 | −£653.40 |
The cash figure is rent after costs and interest, £10,812 − £8,250 = £2,562, minus the tax. For a 20% taxpayer, the tax is £512.40, which is the same as 20% of the old net profit of £2,562. For a 40% taxpayer, the old-style bill would have been 40% of £2,562, which is £1,024.80. Under Section 24 it is £2,674.80, which is £1,650 more. That is the whole difference: the extra 20 percentage points of tax on interest that is no longer deductible.
A higher-rate landlord on a highly geared property can therefore find that the cash flow after tax is close to zero or negative, even though the property still shows a profit before tax. The sums do not include the stamp duty, which was £15,000 on this property as an additional dwelling in England, or any capital growth. Stamp duty on additional homes and second properties sets out the surcharge.
How Section 24 can push you into a higher tax band
Because the profit is higher, adding it to your other income can lift you over a threshold even when your real cash profit is small. Here is a case, worked by hand. A person earns £40,000 from a job and has the same flat. Their income tax on £40,000 alone is (£40,000 − £12,570) × 20% = £5,486.
Under Section 24, the rental profit of £10,812 is added, so total income is £50,812, which is £542 above the £50,270 point where the 40% rate starts. Tax on the total is £37,700 × 20% = £7,540 plus £542 × 40% = £216.80, which is £7,756.80. Extra tax is £2,270.80, and the interest credit of £1,650 brings the net extra tax to £620.80.
Under the old rules, only the £2,562 net profit would have been added, giving total income of £42,562 and extra tax of £2,562 × 20% = £512.40. The Section 24 bill is £108.40 higher, which is exactly 40% less 20% of the £542 that sits above the threshold. It is a small difference here, but it shows how profit can push someone across a threshold. Higher income can also affect other things, such as child benefit and the loss of the Personal Allowance above £100,000, so check the full picture.
Joint ownership and married couples
If a property is owned jointly by a married couple or civil partners, the income is normally split 50/50 for tax, whatever the actual ownership shares, unless they make a declaration on the appropriate HMRC form to reflect unequal ownership. That can help if one partner pays tax at a lower rate. For other joint owners, such as friends or siblings, income is usually split by actual entitlement. The rules for changing ownership have their own consequences, including capital gains tax and stamp duty, so take advice before transferring a property. Capital gains tax explained: rates, allowance and how to work it out covers the gains side.
Does Section 24 apply to limited companies?
No. Section 24 affects individuals, partnerships and trusts, not companies. A company that owns a buy-to-let pays corporation tax on its profit, and finance costs are generally deductible. That is why many landlords have looked at holding property through a company. It is not a simple decision. Transferring existing properties can trigger capital gains tax and stamp duty, and a company has its own costs, mortgage terms and rules on getting profits out. Newer purchases through a company also pay the higher stamp duty rates in many cases. Treat the company route as a question for a qualified adviser, not a shortcut.
What is changing from April 2027
The government has announced separate rates for property income from April 2027. In England, Wales and Northern Ireland the property basic, higher and additional rates will be 22%, 42% and 47%, and finance-cost relief will move to 22% instead of 20%. These rates are not in force in 2026/27, and details may change, so check GOV.UK for the final position when you plan beyond this year.
On the example flat, the tax reduction on £8,250 of interest would rise from £1,650 to £1,815 at 22%, but the tax on £10,812 of profit would also rise for every taxpayer. For a basic-rate landlord the two effects are meant to line up as before. Higher-rate landlords would pay 42% on the profit with only a 22% credit. The calculator uses the 20% rate and is a rough guide, so it is worth re-running your numbers each April.
Record-keeping and Making Tax Digital
Rental income is declared through Self Assessment, with a tax return due by 31 January after the end of the tax year in the usual case. Keep records of rent, invoices, mortgage statements and deposit protection details. Landlords whose combined trading and property income is above a set level also need to use Making Tax Digital for Income Tax. GOV.UK says it applies from 6 April 2026 above £50,000, from 6 April 2027 above £30,000 and from 6 April 2028 above £20,000, with quarterly updates through compatible software. Check which date applies to you.
For landlords in England there are also changes to tenancy rules under the Renters’ Rights Act 2025. From 1 May 2026, assured shorthold tenancies were replaced and Section 21 no-fault evictions ended for private rentals. That affects planning and cash flow rather than tax, so keep it in mind with the sums. Check GOV.UK for the latest detail.
Practical steps for landlords
- Work out profit before interest first, then apply your marginal tax rate, then subtract the 20% credit.
- Compare your numbers at your actual tax rate rather than the basic rate. The difference is where the tax surprises sit.
- Check how rental profit combines with salary, because crossing £50,270 changes the rate on the top slice.
- Keep an eye on interest rate changes at remortgage. On a £150,000 loan, each extra percentage point costs £1,500 a year in interest and, for a basic-rate landlord, about £1,200 after the credit.
- Review whether the property still earns enough after tax. Buy-to-let yield explained shows how yield is measured.
Try the calculator
Enter the price, rent, costs, mortgage and your tax rate in the Buy-to-Let Yield and Rental Profit Calculator to see the yield, the cash flow and a rough after-tax estimate with the Section 24 credit.
Frequently asked questions
Can I deduct mortgage interest from rental income?
Not if you own the property personally. Since Section 24 was fully phased in, you pay tax on rent minus allowable costs and then claim a tax reduction worth 20% of your finance costs. Companies are treated differently.
Does Section 24 affect basic-rate taxpayers?
Often not much. If the credit cancels the extra tax on the higher profit, the result is similar to the old rules. It can still push you over the higher-rate threshold if your profit before interest is large.
What counts as a finance cost?
Mortgage interest is the main one, and the rules also cover some related costs such as certain fees for arranging a mortgage. Check the GOV.UK guidance for the full list and how unused amounts carry forward.
Does Section 24 apply to holiday lets or limited companies?
Companies are outside it. Furnished holiday lettings had their own regime, which has changed, so check GOV.UK for how your let is treated.
Do I pay stamp duty and income tax on a buy-to-let?
Yes, they are separate. Stamp duty is a one-off tax on the purchase, with a surcharge for additional homes, and income tax is charged each year on the rental profit.