Since April 2020, individual landlords cannot deduct mortgage interest and other finance costs from their rental income. Instead, HMRC gives a tax reduction worth 20% of those costs, the basic rate. Basic rate taxpayers often pay about the same as before; higher rate taxpayers, or anyone pushed into a higher band, pay more. From April 2027 the credit rises to 22%, alongside new property income tax rates.
How the restriction was phased in
The rule, widely known as Section 24, applied from 6 April 2017 and was fully in place from 6 April 2020. Each year a smaller share of interest could be deducted and a larger share moved into the tax credit.
Share of finance costs still deductible
How the tax credit is worked out
Your profit is now calculated without the interest. HMRC then takes 20% of the lowest of three amounts: your finance costs for the year plus any brought forward, your property profits after losses, and your adjusted total income above the personal allowance. The reduction cannot create a refund, but unused finance costs are carried forward to later years.
Working out the tax credit
- Calculate profit without interestRent minus allowable expenses, finance costs excluded.
- Find the lowest of threeFinance costs, property profits, adjusted income above the allowance.
- Apply the basic rate20% today, 22% at the property basic rate from April 2027.
- Carry forward the restUnused finance costs move to the next tax year.
What counts as a finance cost
HMRC’s property manual describes the restriction as covering interest and other finance costs on loans to buy residential let properties, including overdraft and hire purchase interest. On a repayment mortgage, only the interest part counts: the capital you repay was never deductible. Other running costs, such as repairs, insurance and agent fees, remain fully allowable against rent.
Who pays more
HMRC’s case studies show the pattern. Sophia, whose only income is rent, pays the same £2,400 before and after the change, because the £4,000 credit offsets her higher profit. John, with £35,000 of self-employed income and £18,000 of rent, sees his bill rise from £6,400 to £8,000, because adding back interest moves part of his income into the higher rate band.
The restriction also feeds into borrowing: lenders must allow for it in their rental tests, as explained in our guide to the buy-to-let stress test.
What changes in April 2027
The government announced on 26 November 2025 that property income will have its own tax rates from April 2027: 22% basic, 42% higher and 47% additional. Finance cost relief will be given at the property basic rate of 22%. GOV.UK presents these as rates for the rest of the UK, not Scotland, so check the latest position if you pay Scottish income tax.
Does a company avoid it?
HMRC confirms that UK resident and non-UK resident companies are not affected by the restriction: a company deducts interest as a business cost. But companies pay the higher rates of stamp duty, explained in our stamp duty surcharge guide, and moving existing properties into one has its own tax costs. This is general information, not financial advice: speak to an FCA-authorised mortgage adviser about your own circumstances. For tax, speak to a qualified accountant.
HMRC case studies, 2020 to 2021
| Sophia | John | |
|---|---|---|
| Other income | None | £35,000 self-employed |
| Rent | £52,000 | £18,000 |
| Mortgage interest | £20,000 | £8,000 |
| Tax before the change | £2,400 | £6,400 |
| Tax after the change | £2,400 | £8,000 |
Frequently asked questions
Does Section 24 apply to limited companies?
No. HMRC says UK resident and non-UK resident companies are not affected by the restriction on residential finance costs.
What happens if my credit is bigger than my tax bill?
The reduction cannot create a refund. Any finance costs that could not be used are carried forward to later tax years.
Will the April 2027 change increase my tax?
Property income will be taxed at 22%, 42% or 47%, two points more than today’s main rates, while the finance cost credit rises to 22%. The overall effect depends on your income and interest.
Individual landlords get a 20% tax credit on mortgage interest, rising to 22% from April 2027; higher rate taxpayers feel the difference most.
Sources
- Changes to tax relief for residential landlords: how it’s worked out, including case studies — GOV.UK / HMRC: phasing 2017 to 2020, basic rate reduction, case studies.
- Changes to tax rates for property, savings and dividend income — GOV.UK (26 November 2025): property rates of 22%, 42% and 47% from April 2027.
- Income Tax when you rent out a property: working out your rental income — GOV.UK / HMRC (updated 19 March 2025): allowable expenses, finance costs, companies not affected.
- PIM2052: Restricting finance cost relief for individuals — HMRC Property Income Manual: scope of the restriction.
- Supervisory Statement 13/16: Underwriting standards for buy-to-let mortgage contracts — Bank of England, Prudential Regulation Authority (September 2016): ICR, stress rate, portfolio landlords.
