Individual landlords cannot deduct mortgage interest from residential rental income. Since 6 April 2020 you get a tax reduction worth 20% of your finance costs instead, capped by your property profits and your income above the personal allowance, with any unused amount carried forward. Former furnished holiday lets have been inside the rule since April 2025. Companies still deduct interest in full. From April 2027 separate property income tax rates of 22%, 42% and 47% apply, and the credit rises to 22%.
Can I claim mortgage interest on a buy to let?
Not as an expense. If you let residential property in your own name, jointly, in a partnership, or through a trust, section 24 stops you deducting finance costs when you work out your rental profit. Instead, HMRC gives you a basic rate tax reduction on the interest you paid.
The restriction was phased in over four years. In 2017/18 you could still deduct 75% of your finance costs, falling to 50% in 2018/19 and 25% in 2019/20. From 2020/21 onwards none of it is deductible and the whole amount goes into the tax reduction.
Which costs count as finance costs?
HMRC treats all of these as restricted finance costs:
- interest on mortgages and other loans used for the letting, including loans to buy furnishings and overdrafts
- arrangement fees and other incidental costs of getting or repaying a loan
- discounts, premiums, disguised interest and alternative finance returns
Capital repayments were never deductible.
How is the 20% tax credit worked out?
The reduction is 20% of the lowest of three figures:
- your finance costs for the year, plus any unused costs brought forward
- your property business profits for the year
- your adjusted total income above the personal allowance (this excludes savings and dividend income)
The reduction can bring your tax bill down to nil but it cannot create a refund. If the cap is set by your profits or your income rather than your interest, the unused finance costs carry forward to later years of the same property business.
Why do some landlords end up in a higher tax band?
Because the interest is no longer deducted, your taxable income is higher than your real profit. That can push a basic rate taxpayer over the higher rate threshold, even though the extra income only exists on paper. It can also take your income over £100,000, where the personal allowance starts to go (see personal allowance tapering).
How much does section 24 cost a higher rate landlord? (illustrative worked example)
This is an illustrative example using 2026/27 rates for a taxpayer in England. Your own figures will differ.
Sarah earns a salary of £60,000, so she already pays higher rate tax. She owns one buy to let flat.
- Rent received: £20,000
- Letting agent, repairs and insurance: £2,000
- Mortgage interest: £9,000
Her taxable property profit is £18,000 (rent less the £2,000 of allowable costs, with no deduction for interest). At 40% that is £7,200 of tax.
Her tax reduction is 20% of the lowest of £9,000 interest, £18,000 profit and about £65,430 of income above the personal allowance. That is 20% of £9,000, which is £1,800. Her tax on the rental income is therefore £5,400.
Before section 24 she would have deducted the £9,000, leaving £9,000 of profit taxed at 40%, which is £3,600. The restriction costs her £1,800 a year.
If the same figures applied in 2027/28, the profit would be taxed at the new property higher rate of 42% (£7,560) and the reduction would be 22% of £9,000 (£1,980), leaving £5,580 to pay.
What changes for property income tax from April 2027?
The Autumn Budget 2025 created separate rates of Income Tax on property income, now legislated in the Finance Act 2026. From 6 April 2027 property income is taxed at:
- 22% property basic rate
- 42% property higher rate
- 47% property additional rate
The finance cost reduction will be given at the property basic rate of 22% from 2027/28, so the credit keeps pace with the basic rate rise. The gap between relief and tax for higher and additional rate landlords stays at 20 and 25 percentage points.
The personal allowance and other reliefs will be set against your employment, pension and trading income first, and only then against property, savings and dividend income. The rates are set for England, Wales and Northern Ireland, and the government has said it will talk to the Scottish and Welsh governments about setting their own property rates.
Are furnished holiday lets still exempt?
No. The furnished holiday lettings regime was abolished from 6 April 2025 for Income Tax and Capital Gains Tax (1 April 2025 for Corporation Tax). Holiday let income is now part of your ordinary property business, and the interest on it gets only the basic rate reduction.
Does section 24 apply to commercial property?
No. Loans used wholly for commercial premises such as shops and offices are outside the restriction, and that interest is still deducted in full. Where a loan funds both commercial and residential lets, it has to be split on a fair basis.
Should I move my rental property into a limited company?
Companies are not caught by section 24. A property company deducts its interest as a normal expense for Corporation Tax. Very large groups may be limited by the corporate interest restriction, but that only bites where net interest costs go above £2 million a year, so it rarely affects a family landlord.
Moving existing properties into a company is a sale for tax purposes, and the costs can be heavy:
- Stamp Duty Land Tax: a transfer to a company you control is charged on at least market value, and companies usually pay the higher rates for residential property.
- Capital Gains Tax: you are treated as selling at market value, so any growth since you bought can be taxed straight away.
- Incorporation relief: if your letting amounts to a genuine business transferred as a going concern for shares, the gain can be rolled into the shares. Whether a portfolio qualifies depends on the facts; see our guide to incorporation relief.
- Refinancing: the company will need its own mortgage, often at a different rate and with new fees.
Extracting money from a company brings dividend tax or salary costs on top of Corporation Tax. Take advice before you act, and see the wider accountancy and tax guide for related topics.
What happens if HMRC opens an enquiry into my rental income?
Finance cost claims, carried forward amounts and apportioned loans are common areas for HMRC questions, and your accountant’s time in answering them is charged to you. Solar Protect tax investigation insurance covers up to £100,000 of accountant’s fees for an HMRC enquiry, with no excess to pay.
You can read how the cover works on our tax investigation insurance page. When you are ready, you can get a quote for Solar Protect in a few minutes.
Related guides: tax investigation insurance for landlords.
Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.