What Section 24 actually costs a higher-rate landlord

Section 24 in one line: you are taxed on profit you never received. Here is the damage on a real flat, in 2026/27 numbers, and the one shortcut for estimating your own bill.

Rates verified against gov.uk — 2026/27 tax year (as of 21 June 2026)

Ask a room of landlords what Section 24 costs them and most will say "quite a lot" and then go quiet, because they've never actually sat down and worked it out. It has been fully in force since April 2020 and people still get the mechanics wrong. So let's do the arithmetic properly, on one ordinary buy-to-let, and put a pound figure on it.

The rule in one sentence

You can no longer deduct mortgage interest from your rental income before tax; instead, you pay tax on the whole rental profit ignoring interest, then get 20% of the interest back as a credit. That's it. Everything painful about Section 24 falls out of that one sentence.

Notice what it means straight away: if you pay tax at 20%, the credit roughly cancels the change and life goes on. If you pay at 40% or 45%, the credit only refunds half (or less) of the relief you used to get. Section 24 is, in practice, a tax on higher-rate landlords with mortgages. Unmortgaged landlords and limited companies never feel it.

One ordinary flat, with real numbers

Take a single let that brings in £1,200 a month. Mortgage interest is £6,000 a year, and other costs (agent, insurance, repairs, the usual) come to £2,400. These are the default figures in our Section 24 calculator, so you can follow along and then swap in your own.

Now the part that matters. Your actual cash profit, the money that exists in the real world after the mortgage and the costs, is £14,400 − £2,400 − £6,000 = £6,000. You're handing £3,600 of it to HMRC. That is a 60% effective tax rate on the profit you actually made.

Under the old rules you'd have been taxed on £6,000 at 40%: £2,400. So on this one modest flat, Section 24 costs you £1,200 a year — which is exactly 20% of your mortgage interest, and always will be for a 40% taxpayer. That's the shortcut worth memorising: your Section 24 bill is your annual interest × 20% (or × 25% at the additional rate). £15,000 of interest across a small portfolio? You're paying £3,000 a year for the privilege of being an individual rather than a company.

The two nastier side effects

The headline cost is only half the story. Two second-order effects catch people out.

First, the phantom income problem. Because the taxman now looks at your rent minus costs (£12,000 here) rather than your real profit, your "income" on paper is inflated. That fake income counts when HMRC decides whether you've crossed the £50,270 higher-rate threshold, when the High Income Child Benefit Charge kicks in, and when your personal allowance starts tapering at £100,000. Plenty of basic-rate landlords have been dragged into the 40% band by rent they never got to keep.

Second, you can owe tax on a loss. Push the interest in the example up to £11,000 (a couple of remortgages at today's rates will do it) and your real cash profit is £1,000. Your tax bill? £4,800 minus a £2,200 credit: £2,600. You made £1,000 and owe £2,600. Nobody believes this the first time they see it, which is precisely why we built the calculator.

What actually moves the dial

Some things help, some are internet folklore. In rough order of usefulness:

• Cut the interest. The whole penalty is proportional to interest, so a cheaper remortgage attacks the problem at the source. Our remortgage savings calculator will tell you in thirty seconds whether switching products beats staying put.
• Max the real deductions. Repairs, agent fees, insurance, replacement of domestic items: all still fully deductible. Landlords routinely under-claim these while obsessing over the interest they can't claim.
• Check whose name the property is in. If your spouse pays basic rate, shifting beneficial ownership can turn a 60% effective rate back into something civilised. Take proper advice; the paperwork (Form 17, declarations of trust) has to be right.
• A limited company — sometimes. Companies deduct interest in full, but you'll trade Section 24 for corporation tax, dividend tax on extraction, higher mortgage rates and, if you're moving existing properties in, CGT and SDLT on the way. It's a genuine fix for some portfolios and an expensive fashion statement for others.

What doesn't help: doing nothing and hoping. From April 2027, property income is due to move onto its own rate schedule of 22%, 42% and 47% — two points higher than the equivalent bands today. The direction of travel is not subtle.

FAQs

Does Section 24 apply to limited companies?

No. A company deducts its mortgage interest in full as a business expense, which is the single biggest reason so many landlords have incorporated since 2017. But a company brings corporation tax, dividend tax when you take the money out, typically higher mortgage rates, and real costs (CGT and SDLT) if you're moving properties you already own into it. Run the whole picture, not just the interest relief.

What about furnished holiday lets?

The favourable furnished holiday lettings regime was abolished from April 2025, so holiday lets now sit under the same restriction as ordinary rentals. If your Airbnb spreadsheet still assumes full interest relief, it's a tax year out of date.

I'm a basic-rate taxpayer — can I ignore all this?

Mostly, with one trap: HMRC measures your income including the grossed-up rental figure. In our example that's £12,000 of paper income, not £6,000 of real profit. If that pushes your total over £50,270, part of your rental income gets taxed at 40% and the credit stops covering it. Basic-rate landlords near the threshold are exactly the people who should check.

Is capital repayment on the mortgage deductible?

It never was, under the old rules or the new. Only the interest portion ever counted, which is one reason interest-only mortgages remain standard for buy-to-let.

The takeaway

For a higher-rate landlord, Section 24 costs 20% of your annual mortgage interest, every year, forever — £1,200 on our example flat, and scaling in a straight line with your borrowing. It also inflates your paper income in ways that trip other tax thresholds, and at high leverage it can tax you on money you never made. Whether that's an annoyance or an existential problem depends entirely on your interest bill, which is why the first move is always the same: put your real figures in and look.

Guidance only. BrickCrunch provides general information, not financial, tax or legal advice. Our calculators give estimates only, using rates we verify against gov.uk — always confirm figures and your own position before acting.