What is the Section 24 buy-to-let mortgage interest restriction?

Section 24 (introduced under the Finance Act 2015) prevents individual landlords from deducting mortgage interest and other finance costs from their rental income before calculating tax. Instead, landlords must pay tax on their gross rental profits (minus running expenses) and then claim a basic-rate tax credit equal to 20% of their finance costs to offset their tax bill.

How does Section 24 affect higher-rate taxpayers compared to basic-rate?

Basic-rate taxpayers (20%) are generally unaffected because the 20% tax credit matches their tax bracket. However, higher-rate (40%) and additional-rate (45%) taxpayers face a significant tax increase. Because they pay tax at 40% or 45% on the rental profit but only receive a 20% credit on the interest, their tax bill rises, sometimes exceeding their actual cash profits.

What are the main strategies to reduce buy-to-let tax liabilities?

Landlords frequently use several strategies: purchasing new properties through a Limited Company (where mortgage interest remains fully deductible as a business expense); transferring property ownership to a spouse in a lower tax bracket; or making personal pension contributions to lower their adjusted net income and remain within the basic-rate tax band.

What rental expenses are considered allowable for BTL tax?

Allowable expenses include letting agent fees, property management costs, buildings and contents insurance, utility bills and council tax paid during void periods, ground rent, service charges, accounting fees, and direct maintenance or repairs (excluding capital improvements).

Is it better to buy rental property personally or through a limited company?

Buying through a limited company is generally more tax-efficient for higher-rate taxpayers because companies pay Corporation Tax (19% to 25%) and can fully deduct mortgage interest. However, personal ownership may be better for basic-rate taxpayers because company structures carry higher mortgage interest rates, accountancy fees, and dividend tax when extracting profits.

How does the Section 24 tax credit apply if my property makes a loss?

If your property business makes a loss, you cannot use the Section 24 tax credit in that year because there is no tax liability to offset. However, you can carry the unused finance costs forward indefinitely to offset against tax liabilities in future profitable years.

Are mortgage arrangement fees eligible for the 20% tax credit?

Yes. Mortgage arrangement fees, broker fees, valuation fees required by the lender, and interest on loans taken out to fund property renovations are all classified as finance costs and qualify for the 20% basic-rate tax credit.

How do I declare my buy-to-let income and pay the tax?

You must declare your rental income and expenses to HMRC by filing an annual Self Assessment tax return. You must report your gross rent, allowable expenses, and total mortgage interest in the property section of the return by 31 January following the end of the tax year.

Buy-to-Let Landlord Tax Calculator 2026/27

Buy-to-Let Landlord Tax Calculator

✓ Verified for 2026/27

Rental & Expense Details

Monthly Rental Income

Annual Mortgage Interest

Required to calculate your Section 24 tax relief credit.

Annual Running Expenses

Insurance, letting fees, maintenance, etc. (Interest excluded)

Other Personal Income (Annual)

Salary, pensions, etc. Determines your income tax bracket.

ⓘ

Section 24 rules apply: You cannot deduct mortgage interest from your rental income before calculating tax. Instead, you receive a 20% basic rate tax credit on your interest costs.

Tax on Rental Income

£2,400

After Section 24 Credit

Net Monthly Cashflow

£633

after expenses, interest, & tax

Section 24 Tax Credit

£1,200

applied reduction

Effective Tax Rate

15.0%

on net rental profit

BTL Annual Breakdown

Gross Rental Income £18,000

Allowable Operating Expenses -£2,000

Mortgage Interest Paid -£6,000

Income Tax Payable -£2,400

Net Annual Rental Cash Profit £7,600

Net Profit 42%

Tax & Costs 58%

🛡️

Verified for Accuracy (2026/27 Tax Year)

Fact-checked and audited by David Vance, CTA FCA, Chartered Tax Advisor & Accountant. Verified against official HMRC rules.

How We Calculated This

Consolidate Rental Income and Expenses: Input your annual gross rental income and calculate all allowable property running expenses. Allowable expenses include letting agent fees, property maintenance, landlord insurance, utility bills (if paid by the landlord), and council tax during void periods. Under standard rules, mortgage interest is not an allowable expense.
Apply Section 24 Mortgage Interest Restrictions: Under the statutory Section 24 rules, you cannot deduct mortgage interest payments or other finance costs from your rental income to find your taxable profit. Instead, calculate your taxable rental profit strictly as Gross Rental Income minus allowable running expenses.
Assess Personal Income Tax Position: Add the calculated taxable rental profit to your other personal income (such as employment salary, pension, or dividends). This determines your marginal tax bracket (20% basic, 40% higher, or 45% additional rate) for the 2026/27 tax year.
Compute Income Tax on Rental Profit: Calculate your initial income tax liability by multiplying the taxable rental profit by your marginal personal tax rate. For example, if you are a higher-rate taxpayer, you pay a flat 40% tax on your rental profit.
Apply the Section 24 Basic Rate Tax Credit: Deduct the Section 24 finance tax credit from your calculated tax liability. The credit is calculated as 20% of your total mortgage interest and finance costs. If your tax liability is lower than the credit, the credit is capped at the tax liability amount, and any unused credit cannot be refunded.
Calculate Net Cash Flow and True Yield: Deduct your actual tax due, your allowable expenses, and your actual mortgage interest payments from your gross rental income to find your final net cash profit. Divide this cash profit by your initial capital investment to find your net cash-on-cash yield.

Real-World Examples

Detailed Math for Higher-Rate Taxpayer with £20,000 Rent and £10,000 Interest

This scenario details the calculations for a landlord earning £50,000 from employment (placing them in the 40% higher-rate bracket) who receives £20,000 in rental income with £2,000 in expenses and £10,000 in mortgage interest.

Step 1: Calculate Taxable Rental Profit (excluding interest):
        Taxable Profit = Rent - Expenses = £20,000.00 - £2,000.00 = £18,000.00
Step 2: Calculate Initial Tax at Higher Rate (40%):
        Initial Tax = £18,000.00 * 0.40 = £7,200.00
Step 3: Calculate Section 24 Basic Rate Tax Credit (20% of interest):
        Tax Credit = £10,000.00 * 0.20 = £2,000.00
Step 4: Calculate Net Tax Due on Rental Profit:
        Net Tax = Initial Tax - Credit = £7,200.00 - £2,000.00 = £5,200.00
Step 5: Calculate True Net Cash Profit:
        Cash Profit = Rent (£20,000) - Expenses (£2,000) - Interest (£10,000) - Net Tax (£5,200)
        Cash Profit = £20,000.00 - £17,200.00 = £2,800.00
        (Notice that because of Section 24, your effective tax rate on the actual cash profit is 52%.)

Detailed Math for Limited Company Buy-to-Let Scenario

This scenario details the calculations for the same property transaction held within a limited company structure, where mortgage interest remains fully deductible.

Step 1: Gross Rent = £20,000.00; Expenses = £2,000.00; Interest = £10,000.00
Step 2: Calculate Taxable Profit (Interest is fully deductible in a company):
        Taxable Profit = Rent - Expenses - Interest = £20,000.00 - £2,000.00 - £10,000.00 = £8,000.00
Step 3: Calculate Corporation Tax (Small Profits Rate of 19%):
        Corporation Tax = £8,000.00 * 0.19 = £1,520.00
Step 4: Calculate True Net Cash Profit (held in company):
        Cash Profit = Taxable Profit - Corp Tax = £8,000.00 - £1,520.00 = £6,480.00
        (Operating through a company yields £6,480 cash compared to only £2,800 in personal name.)

Related Calculators

Frequently Asked Questions

How is rental profit taxed for UK buy-to-let landlords?

Rental income is treated as personal income. Your annual gross rental income, minus allowable expenses, is added to your other earnings (like salary or dividends) and taxed at your marginal income tax band (20% basic, 40% higher, or 45% additional rate). Legitimate allowable expenses include letting agent fees, landlord insurance, council tax, utility bills, ground rent, service charges, and repair costs. However, capital costs, such as installing a brand-new conservatory or upgrading standard fittings to luxury specifications, are not deductible from rental income (though they can be used to reduce Capital Gains Tax when you eventually sell the property).

What is Section 24 and how does the mortgage interest tax credit work?

Under Section 24 (introduced in 2017), individual landlords can no longer deduct mortgage interest, finance costs, or arrangement fees from their rental income before calculating tax. Instead, you must pay income tax on your entire gross rental profit, and then claim a basic 20% tax credit on your mortgage interest costs to reduce your tax bill. This is a massive disadvantage for higher-rate (40%) and additional-rate (45%) taxpayers because they effectively lose half of their mortgage interest relief. Furthermore, declaring gross rental income can artificially push basic-rate taxpayers into the higher-rate bracket, trigger child benefit clawbacks, or taper down their personal allowance.