Section 24 Tax Impact
How the mortgage interest restriction hits landlords at each tax band.
Pre vs Post Section 24
Basic rate (20%)
NeutralBefore
Mortgage interest deducted from rental income before tax
After (current)
20% tax credit applied — usually no change in total tax
Higher rate (40%)
SignificantBefore
Interest deducted at 40% — full relief
After (current)
Interest only attracts 20% credit — extra 20% tax on interest
Additional rate (45%)
SevereBefore
Interest deducted at 45% — full relief
After (current)
Interest only attracts 20% credit — extra 25% tax on interest
How the calculation works
- Add full rental income to your taxable income (no interest deduction).
- Calculate income tax on this gross figure at your marginal rate.
- Reduce the resulting tax bill by 20% of mortgage interest paid.
- If the credit exceeds tax due on rental profits, the excess is lost (carried forward).
Common traps
- Pushes rental income into higher bands — you may lose Child Benefit (>£60k) or personal allowance (>£100k).
- Mortgaged BTLs in personal name can show paper profit but real cash loss.
- Often the trigger to consider Ltd company structure — but watch SDLT 5% surcharge on transfer.
Section 24 applies to individuals letting residential property. Limited companies are unaffected — interest remains a business expense.