Section 24: the mortgage interest restriction, with real numbers

Scope: applies across the UK to individuals letting residential property. Scotland sets its own income tax rates and bands; the worked example below uses the England, Wales and Northern Ireland rates for 2026/27.

The finance cost restriction — still universally called section 24 after the clause that introduced it — has been fully in force since 6 April 2020. It is old news and it is still the single biggest reason a landlord’s tax bill does not match their intuition.

What changed

Mortgage interest on a residential let used to be an expense: it came off your rental income before tax was calculated. It is now a tax reducer: your profit is worked out before interest, tax is charged on that figure, and you then get a credit worth 20% of the interest — the basic rate.

HMRC’s wording: relief on residential property finance costs is “restricted to the basic rate of Income Tax”.

For a basic-rate taxpayer the arithmetic often lands in the same place. For anyone else it does not, and the reason is that the restriction inflates the income figure the rest of the tax system looks at.

Worked through

A landlord with rent of £30,000, non-interest costs of £6,000, and mortgage interest of £14,000. No other income.

Under the old rules

• Taxable profit: £30,000 − £6,000 − £14,000 = £10,000
• That sits inside the personal allowance. Tax: nil.

Under section 24

• Taxable profit: £30,000 − £6,000 = £24,000
• Tax on £24,000 at the applicable rates, then reduce by 20% × £14,000 = £2,800 credit

Same cash, same mortgage, a different answer — and a declared income of £24,000 rather than £10,000.

The part that actually hurts

The credit itself is not usually the problem. The inflated income figure is, because it is the number used for:

• The higher-rate threshold. A landlord whose real profit sits below it can be pushed above it by interest they genuinely paid.
• The personal allowance taper, which withdraws the allowance above £100,000 of adjusted net income.
• The High Income Child Benefit Charge.
• Student loan repayments, and other income-tested entitlements.

This is why a leveraged landlord can pay tax exceeding their actual cash profit. It is not a bug in the calculation; it is the design.

What the restriction covers

Interest on mortgages, loans and overdrafts taken out for the property business, plus alternative finance returns and the incidental costs of obtaining that finance. It is the interest, never the capital repayment — capital was never deductible and still is not.

What it does not cover

• Companies. A limited company deducts finance costs in full, which is the whole engine behind the incorporation question — see when a limited company actually wins.
• Commercial property and furnished holiday lets are outside the residential restriction, though the FHL regime itself has been abolished.

Unused credit

The reduction cannot create a repayment. Where it is restricted — commonly because profits are low — the unused amount is carried forward to set against a later year’s liability. It is deferred, not lost.

Information tool, not tax advice. The example is illustrative; take advice on your own position.