Why it matters
What Mortgage Interest Tax Credit (Section 24) means for a landlord
Section 24 is the single change that reshaped buy-to-let economics, and it is widely misunderstood because it does not reduce the tax you pay so much as change the number you are taxed on. Your taxable profit is calculated **before** deducting mortgage interest, and you then receive a credit worth 20% of that interest. A higher-rate landlord therefore pays tax on income that has already gone to the lender, the reason the effect is often called phantom income. It can also push a landlord into a higher band, or over the High Income Child Benefit threshold, on money they never received. From April 2027 property income is taxed a further two points higher, which compounds it.
Worked example
How it plays out
Hassan, a higher-rate taxpayer, has rental profit of £20,000 before mortgage interest and pays £9,000 of interest. He is taxed on the £20,000: £8,000 at 40%. He then gets a credit of 20% of the interest, £1,800, so he pays £6,200. Before Section 24 he would have paid 40% of £11,000, £4,400. The £1,800 difference is what the restriction costs him each year.
Common mistakes
Where landlords go wrong
- 01Deducting mortgage interest as an expense on the property pages.
- 02Ignoring how the higher taxable figure affects Child Benefit or allowances.
- 03Assuming a limited company is automatically better without costing the transfer.
What to do
A short checklist
- Keep finance costs separate from other expenses.
- Model your tax at the property income rates from 2027 to 2028.
- Take advice before moving properties into a company.
Sources
Checked against these sources on 16 September 2026. A guide to the rules in England, not legal advice: for a dispute or a possession claim, speak to a solicitor.
