A higher rate landlord with £16,000 of rental profit before £8,000 of mortgage interest pays £4,800 in 2026/27, where deducting the interest in full would have cost £3,200.
A landlord on a £60,000 salary with one residential buy-to-let in their own name
| Salary, taxed through PAYE | £60,000.00 |
| Rental profit before mortgage interest | £16,000.00 |
| Mortgage interest paid | £8,000.00 |
| Income tax: £16,000 at 40% | £6,400.00 |
| Less finance cost credit: 20% of £8,000 | −£1,600.00 |
| Tax on the rental profit | £4,800.00 |
If the interest were deducted in full, the tax would be £8,000 at 40%, which is £3,200. Section 24 costs this landlord £1,600 a year.
England. The salary uses the whole basic rate band, so all the rental profit is taxed at 40%. All assumptions and rates
Where £16,000 of rental profit ends up
Assumptions and rates
- England. The salary uses the whole basic rate band, so all the rental profit is taxed at 40%.
- Total income stays under £100,000, so the personal allowance is not reduced.
- £16,000 is rent less allowable expenses, before the £8,000 of mortgage interest.
- Income tax 40% on the rental profit
- Finance cost credit: 20% of the lowest of finance costs, property profits and adjusted total income
What is Section 24?
The rule that restricts tax relief on residential mortgage interest and other finance costs to the basic rate. Since April 2020 the interest is not deducted from rental profit at all. You are taxed on the full profit, then given a credit of 20% of the interest.
Does it cost basic rate landlords anything?
Not directly. At 20%, £16,000 of profit costs £3,200 and the £1,600 credit brings it to £1,600, the same as deducting £8,000 of interest in full.
It can still catch you out, because your income is measured before the interest. £16,000 of rental profit on top of a £40,000 salary takes you past £50,270, so part of it is taxed at 40% even though your profit after interest is £8,000.
What does 'the lowest of' mean for the credit?
The credit is 20% of whichever is lowest: your finance costs, your property profits, or your adjusted total income above the personal allowance. In a year when the property makes little profit, the credit is capped at 20% of that profit, and the unused finance costs carry forward to later years.
What changes from April 2027?
From 6 April 2027 property income has its own rates of 22%, 42% and 47%, and the finance cost credit rises to 22%. The same landlord would pay £16,000 at 42%, which is £6,720, less a credit of £1,760, giving £4,960. That is £160 more than in 2026/27.
Can it push me over £100,000?
Yes. Because rental profit is counted before the interest, a landlord whose income is near £100,000 can find their personal allowance starting to shrink even though their profit after interest is lower. Each £2 over £100,000 removes £1 of allowance.
Does it apply to property held in a company?
No. A company deducts interest as an expense. Moving existing property into a company is a separate decision with its own costs, including stamp duty and capital gains tax on the transfer, and people in this position often take advice before deciding.
What this doesn’t cover
- Commercial property, where finance costs are still deducted in full.
- Property held through a limited company.
- Jointly owned property and how profit is split.
- Scottish income tax rates.
- Income over £100,000, where the personal allowance is reduced.
Common questions
Not for a residential let owned personally. You get a 20% tax credit on it in 2026/27, rising to 22% from April 2027.
No. Only interest and other finance costs qualify for the credit. Capital repayments get no tax relief.
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