Section 24 Tax UK: What London Landlords Must Know in 2026
- UpperKey
- 3 minutes ago
- 6 min read
Section 24 tax has fundamentally altered UK property investment, especially for London landlords who face higher operating costs and tighter margins. The Finance (No. 2) Act 2015 introduced this legislation and caps mortgage interest relief at a 20% tax credit. Higher-rate taxpayers who previously claimed 40% or 45% tax relief now only receive 20%. This results in tax liabilities that are much higher.
The full impact has been felt since the 2020/21 tax year, and much of the landlord exits since 2020 can be attributed directly to section 24 property tax. We'll break down how to use a section 24 tax calculator in this piece. You'll also learn strategies to minimize your landlord section 24 tax burden and get into what the future holds for London buy-to-let investors in 2026 and beyond.
Table of Contents
Section 24 Tax UK: Complete Guide for 2026
What Section 24 means for individual landlords
Section 24 of the Finance Act 2015 changed how individual landlords handle mortgage interest. You can no longer deduct mortgage interest from rental income when you calculate taxable profits. You receive a basic rate tax credit of 20% on your finance costs instead. This applies whatever your tax bracket: basic-rate, higher-rate, or additional-rate taxpayer.
You could deduct 100% of mortgage interest payments from rental income before Section 24 and reduce your taxable profit. The new system taxes you on full rental income and then applies the 20% credit against your tax liability. The financial effect remains minimal if you have a basic-rate tax status. The change is major for higher-rate taxpayers. You previously claimed relief at 40% or 45% but now receive only 20%. This creates a most important tax increase on the same property income.
Section 24 applies to UK residents letting properties domestically or overseas, non-UK residents letting within the UK, and individuals in partnerships or trusts liable for UK income tax on residential lettings. It does not apply to limited companies, which can still deduct mortgage interest as a business expense, or to commercial properties.
Timeline: from announcement to full implementation
Chancellor George Osborne announced Section 24 on July 8, 2015 during the Summer Budget. The restriction was phased in over four tax years. 75% of finance costs remained deductible with 25% given as a basic rate tax credit in 2017/18. The proportion shifted to 50/50 in 2018/19 and then 25/75 in 2019/20. 100% of the restriction applies from April 2020 onwards with no finance costs deductible from rental income.
Why mortgage interest relief was restricted
The government introduced Section 24 to curb the buy-to-let market's rapid growth. This market was inflating property prices and making homeownership harder for first-time buyers. The policy wanted to level the playing field between buy-to-let investors and residential buyers. It also wanted to reduce speculative property investments and promote homeownership through restricting tax advantages that landlords previously enjoyed.
Common misconceptions about Section 24
A major source of confusion is believing you cannot claim mortgage interest at all. You still receive a 20% credit, just not a full deduction. Another misconception is that Section 24 affects all properties. It only applies to residential lettings, not commercial property. Many assume it affects all landlords the same way. Limited companies remain exempt and can deduct mortgage interest in full.
Calculating Your Section 24 Tax Bill as a London Landlord
Step-by-step Section 24 tax calculator method
Working out your section 24 tax liability follows a precise sequence. Calculate your gross rental income from all London properties first. Deduct allowable expenses excluding mortgage interest to arrive at your taxable rental profit second. Add this profit to your other income such as salary or pension to determine total taxable income third. Calculate tax on this total using current tax bands fourth. Work out your 20% tax credit by multiplying mortgage interest by 20% fifth. Subtract this credit from your total tax bill for your final liability sixth.
Worked example: basic rate London landlord
Sarah earns £35,000 from employment and owns one London rental generating £14,000 annually. Her mortgage interest totals £6,000 with £2,000 in other expenses. Her taxable rental profit becomes £12,000 (£14,000 minus £2,000). Total income reaches £47,000 and keeps her within the basic rate band. Tax on rental profit equals £2,400 at 20%, less the £1,200 mortgage interest credit (20% of £6,000). Sarah pays £1,200 net, similar to pre-Section 24 rules.
Worked example: higher rate London landlord
James earns £70,000 from employment with the same property profile as Sarah. His taxable rental profit of £12,000 gets taxed at 40%, equaling £4,800, minus the £1,200 credit. James pays £3,600, which is £1,200 more annually than before Section 24. This differential compounds faster for London landlords with multiple properties carrying £8,000 average mortgage interest each.
How total income affects your Section 24 position
Your total taxable income determines whether Section 24 damages your finances. You lose £1 of personal allowance for every £2 above that threshold at the time adjusted net income exceeds £100,000. This creates an effective 60% tax rate. Section 24 inflates your reported income and potentially triggers this taper even when actual cash profit remains modest.
Allowable vs restricted expenses under Section 24
You can still deduct letting agent fees, insurance premiums, repairs, maintenance and accountancy fees from rental income. Finance costs now restricted include mortgage interest and loan arrangement fees. These restricted costs only qualify for the 20% tax credit applied after calculating your tax liability.
How to Legally Minimize Section 24 Impact
Several legal approaches can minimize your section 24 tax burden, though each carries distinct trade-offs worth a close look.
Limited company incorporation: pros and cons
Limited companies avoid Section 24 and deduct mortgage interest in full as a business expense. Corporation tax rates sit at 19% for profits under £50,000 and 25% above £250,000. But buy-to-let company mortgages cost 0.5-1% more than personal mortgages. Transferring existing properties triggers both Capital Gains Tax and Stamp Duty Land Tax, which can outweigh tax savings unless you hold a substantial portfolio. More buy-to-let companies were set up between 2016 and 2020 than in the previous 50 years combined.
Holiday lets and furnished lettings (post-2025 changes)
The furnished holiday let tax regime was abolished from April 2025. Properties that were exempt now face Section 24 restrictions, with mortgage interest relief capped at 20% for higher-rate taxpayers.
Income splitting with spouse or civil partner
Married couples can split rental income beyond the default 50/50 split on the condition that both partners hold legal ownership. You must prepare a Declaration of Trust reflecting actual beneficial ownership and submit Form 17 to HMRC within 60 days.
Reducing financing costs through remortgaging
Refinancing to lower mortgage rates reduces your overall interest burden, though this only partially offsets section 24 property tax effect.
When selling makes financial sense
If section 24 tax calculator results show persistent losses, selling may prove more prudent than continuing to subsidize underperforming London properties. UpperKey offers you the best service for landlords who are thinking about their exit options in view of changing tax pressures.
London Rental Market in 2026: Section 24 and Beyond
How Section 24 has altered the London rental map
Section 24 property tax has driven an estimated net reduction of 400,000 rental properties from the private rented sector since 2016. Landlords sold 126,000 of these since 2022. Now 270,000 buy-to-let companies are in operation, and almost 75% of those planning to buy a rental property in the next 12 months will use a limited company structure.
Effect on London rent levels and availability
Reduced supply has affected tenants directly. Average rents increased 51% between 2017 and October 2022, rising from £773.74 to £1,171. The decrease in rental property availability has limited housing options for tenants in high-demand areas like London substantially.
Making Tax Digital compliance from April 2026
Landlords with gross rental income over £50,000 must submit quarterly updates through approved software starting 6 April 2026. The first return covering 6 April to 5 July 2026 must be filed by 7 August 2026. Penalty points apply for late filings. A £200 fine comes after two late submissions.
Upcoming tax pressures landlords must plan for
Tax rates on rental income increase by 2 percentage points starting April 2027: 22% basic rate, 42% higher rate, and 47% additional rate. Properties valued over £2 million face a high-value council tax surcharge from April 2028.
Long-term outlook for London buy-to-let investors
Rental demand in London remains resilient due to housing shortages. But operational complexity from regulation is reshaping landlord strategies rather than underlying asset viability.
FAQs
What is Section 24 tax UK?
It restricts mortgage interest tax relief for individual landlords.
Can landlords deduct mortgage interest under Section 24?
Not directly. Eligible finance costs generally receive a 20% tax credit.
How do I calculate Section 24 tax?
Calculate taxable rental profit, then apply the eligible 20% finance cost tax credit.
What expenses can landlords still deduct?
Eligible costs can include management fees, insurance, repairs and accountancy fees.
Does Section 24 apply to limited companies?
No. Section 24 restrictions apply to individual landlords, not limited companies.
