Section 24 tax

Section 24 of the Finance (No.2) Act 2015 phased out the ability for individual UK landlords to deduct mortgage interest from rental income before tax. Since April 2020 mortgage interest is no longer an allowable expense for an unincorporated landlord; instead HMRC gives a 20% basic-rate tax credit calculated on the lower of finance costs, property profits, or adjusted total income. The headline impact: higher-rate (40%) and additional-rate (45%) taxpayers effectively see only 20% relief on mortgage interest, while their gross rental income is taxed at full marginal rate.

The practical effect varies sharply by leverage. A landlord with no mortgage is unaffected. A landlord with a 75% LTV mortgage on a low-yielding London flat is the worst-case scenario: gross rental income pushes total income into the higher-rate band (which itself can pull the personal allowance taper into play above £100,000), and the 20% credit covers a tiny fraction of the actual interest cost. Many highly-leveraged London / South-East landlords moved into negative net cash flow as base rates rose between 2022 and 2024.

This calculator runs both regimes side by side using the 2026/27 income-tax bands (£12,570 personal allowance, 20% basic to £50,270, 40% higher to £125,140, 45% additional above) and the personal-allowance taper (£1 lost per £2 of adjusted income above £100,000). It shows the gap between pre-2017 rules (full deduction at marginal rate) and the current 20%-credit rules so you can see exactly how much extra tax Section 24 is costing on this property.

For a portfolio landlord the comparison usually triggers a wider question: is incorporation worth it? Holding properties through a UK Limited Company sidesteps Section 24 (interest is a fully-deductible business expense for a Ltd), but moves you into corporation tax (25% main rate from £250k profit) plus dividend tax on extraction. Below roughly £50k of property profit, personal ownership is usually still neutral or better; above it, incorporation often wins on cash-tax. Stamp Duty on property transfers and CGT on uplift make a one-off transfer expensive though: incorporation is usually a forward-only decision rather than a retrofit.

Section 24 also interacts with Mortgage Interest Relief in two non-obvious ways. First, the 20% credit is restricted by your property profits: if your property makes a loss, the unused finance cost carries forward (HMRC SA105 box 44) but cannot create a current-year refund. Second, the tax credit comes off your final tax bill, not your taxable income, so it does not affect the £100k personal-allowance taper threshold or your child-benefit High-Income Charge. A higher-rate landlord with three mortgaged BTLs can lose their personal allowance entirely without realising why: this calculator surfaces that effect.

When you run the numbers, anchor the decision on three figures: tax under old rules, tax under current rules, and effective marginal rate on the next £1 of rent. If the effective rate is above 60% (which happens in the personal-allowance taper window) the property is being taxed at a punitive rate and is a candidate for incorporation, sale, or remortgaging onto a lower-rate product. Use a tax adviser before acting: this calculator gives you the magnitude of the problem, not the legal answer.