Section 24 Mortgage Interest Relief Explained: How the 20% Tax Credit Actually Works

Since April 2020, UK landlords can no longer deduct mortgage interest as an expense. Here is exactly how the 20% tax credit works, who it hurts, and what to do about it.

The change that caught thousands of landlords by surprise

Before April 2017, if you paid £10,000 of mortgage interest on a buy-to-let, you simply deducted it from your rental income before working out tax. Higher-rate taxpayers effectively got 40% relief. From April 2020, that deduction is gone. Instead, you get a flat 20% basic-rate tax credit on your finance costs, applied after your tax bill is calculated.

This is "Section 24" of the Finance (No. 2) Act 2015 — sometimes called the "Tenant Tax". For a higher-rate landlord with a leveraged portfolio, it can turn a real-world profit into a paper loss.

How the 20% credit actually works

Take a worked example. Annual rent £18,000, allowable costs (repairs, insurance, agent fees) £3,000, mortgage interest £8,000.

Old rules (pre-2017): - Taxable profit = 18,000 − 3,000 − 8,000 = £7,000 - Tax at 40% = £2,800

New rules (from April 2020): - Taxable profit = 18,000 − 3,000 = £15,000 (interest no longer deductible) - Tax at 40% = £6,000 - Less 20% credit on £8,000 interest = −£1,600 - Net tax = £4,400

Same real-world cashflow. £1,600 more tax. That gap is what Section 24 costs you every year.

Who is hit hardest

• Higher- and additional-rate taxpayers. Basic-rate (20%) payers see no change.
• Highly leveraged portfolios with thin margins.
• Landlords who were just under the higher-rate threshold — the added taxable profit can drag you into the 40% band even if your actual income did not change.
• It can also push your total income over £100,000 (tapered personal allowance) or £50,270 (Child Benefit charge) thresholds.

What still counts as a finance cost

The 20% credit applies to:

• Mortgage interest (capital repayments are never deductible)
• Loan interest on funds used to buy or improve the rental property
• Interest on loans to buy furnishings
• Mortgage arrangement fees and broker fees (spread over the loan term)

It does not apply to capital repayments, fines, or personal-use borrowing.

Five legitimate ways landlords are responding

1. Incorporation. Limited companies still get full interest deduction against corporation tax. But beware: stamp duty (3% surcharge), CGT on transfer, refinancing costs, and director loan complexity. Worth modelling carefully — it is rarely a no-brainer for a small portfolio. 2. Joint ownership with a lower-earning spouse. Splitting beneficial ownership shifts taxable profit. A non-earning spouse can absorb up to £12,570 personal allowance plus the basic-rate band. Requires a Form 17 declaration and matching beneficial ownership. 3. Switching to repayment mortgages. Reduces the interest amount over time. Cashflow hit now, tax saving later. 4. Paying down debt with savings. Same logic as repayment — useful if you have low-yielding cash sitting around. 5. Doing nothing — with eyes open. If you are a basic-rate taxpayer, Section 24 changes nothing. The work is in modelling whether you genuinely will be a basic-rate taxpayer once rental profit is added back.

Common mistakes we see on tax returns

• Claiming the full interest as an expense in box 26 of SA105. It belongs in box 44 (residential property finance costs) for the 20% credit.
• Forgetting the carry-forward. If your finance costs exceed your rental profit in a year, the unused portion carries forward to be relieved in future years.
• Not splitting interest in mixed-use loans (e.g. one mortgage covering BTL plus personal home).
• Including capital repayments. Only the interest portion counts.

How LetSentry helps

• Mortgage tracker logs interest separately from capital repayment so the right number flows into your tax records.
• SA105 box-by-box preview shows your finance cost in box 44 with the 20% credit calculated, so you can sanity-check before filing.
• Joint-ownership apportionment automatically splits taxable profit between you and a co-owner spouse based on the beneficial share you set per property.
• Quarterly accountant pack PDF includes finance costs broken out, ready to hand to your accountant.

Important: this is general guidance, not tax advice

Section 24 interacts with your wider income, marriage status, other reliefs and personal allowance taper. Before restructuring, refinancing, or incorporating, talk to a qualified accountant or tax adviser who has seen your full picture. LetSentry is an organisational tool — we surface the numbers, but we do not give tax advice.

Useful references

• HMRC PIM2058 — finance costs
• SA105 Notes (current year)
• Form 17 — declaration of beneficial interests

Sources: - https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies - https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords - https://www.gov.uk/renting-out-a-property/paying-tax - https://www.legislation.gov.uk/ukpga/2015/33/section/24/enacted

Published: 2026-05-06.

Last reviewed: 2026-08-30.

General summary; not legal advice.