Section 24: The Tax Change That's Still Catching Landlords Out in 2026

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The mortgage interest relief restriction has been fully phased in for several years now, but its cash-flow implications continue to surprise landlords who haven't run the numbers — especially those with larger mortgages relative to rental income.

Section 24 of the Finance (No. 2) Act 2015 is, for many UK landlords, the single biggest change to the economics of buy-to-let in a generation. Despite being fully phased in since the 2020/21 tax year, its practical impact continues to catch landlords off guard — particularly higher-rate taxpayers with significant mortgage debt.

What Section 24 actually does

Before the change, landlords could deduct mortgage interest from rental income before calculating their tax liability. A landlord earning £20,000 in rent and paying £12,000 in mortgage interest would only be taxed on £8,000.

Under Section 24, mortgage interest is no longer deductible from rental income. Instead, landlords receive a basic-rate tax credit (20%) on finance costs. This might sound equivalent, but the difference is significant for higher and additional-rate taxpayers.

The same landlord now:

• Pays tax on the full £20,000 rental income
• Receives a £2,400 tax credit (20% of £12,000)
• Net tax bill is higher — and in some cases, landlords are now taxed on profits they're not actually making

The threshold effect

One of the most counterintuitive consequences of Section 24 is that it can push landlords into a higher tax band. Because gross rental income is now included in your total income calculation before reliefs, some landlords find themselves tipped into the 40% or 45% bracket on paper — even if their actual cash profit is relatively modest.

This is particularly acute for landlords who:

• Have high loan-to-value mortgages
• Are salaried employees with rental income on top
• Have grown their portfolio using leverage

What good record-keeping looks like

The good news is that Section 24 has made systematic financial records more important, not less — which is a nudge in the right direction for landlords who've historically been informal about their bookkeeping.

Key things to track rigorously:

• Gross rental income by property, by month
• Finance costs (mortgage interest specifically — not capital repayment)
• Allowable expenses (maintenance, insurance, letting agent fees, professional subscriptions)
• Capital expenditure vs revenue expenditure (a distinction HMRC takes seriously)

Having this data organised means your accountant can work faster, your self-assessment is less stressful, and you have a clear picture of which properties in your portfolio are genuinely profitable.

The incorporation question

Some portfolio landlords have restructured into limited companies to sidestep Section 24 — corporations can still deduct mortgage interest as a business expense. This is a legitimate strategy, but it comes with significant complexity: stamp duty land tax on transfer, capital gains considerations, and ongoing corporation tax compliance.

Whether incorporation makes sense depends on your individual circumstances. If you're considering it, professional tax advice is essential — the numbers need to stack up across the full picture, not just the mortgage interest deduction.

The bottom line

Section 24 has permanently changed the economics of leveraged buy-to-let for higher-rate taxpayers. If you haven't modelled the impact on your portfolio recently — or if you've added properties since last doing so — it's worth revisiting with an accountant before the next self-assessment deadline.

The landlords who manage it best are those with clear, organised financial records and a realistic view of their actual post-tax returns.