Section 24: why you can't deduct your mortgage interest any more

What is Section 24?

Section 24 is the rule that stopped landlords deducting residential mortgage interest from their rental income. It was phased in from 2017 and has applied in full since 6 April 2020.

Before the change, the maths was simple. You took your rent, subtracted your mortgage interest along with your other costs, and paid tax on what was left. Interest was treated like any other expense.

That's gone. You can no longer deduct residential finance costs from your rental income at all. Instead, you get a tax reduction worth 20% of those costs. HMRC calls them residential finance costs, and the term covers more than the mortgage: interest on buy-to-let loans, overdrafts, and the fees for arranging or repaying them all sit inside it.

The word "deduct" is where landlords go wrong. You're not deducting anything. You're declaring the full rent as profit, then claiming a separate 20% credit against your final tax bill.

How the basic-rate tax reducer works

Two things changed at once, and they pull in different directions.

First, your taxable rental profit goes up, because the interest no longer comes off it. Second, you get a tax reducer worth 20% of your finance costs, applied after your tax is calculated.

For a basic-rate taxpayer, those two changes roughly cancel out. The relief at 20% matches the rate you'd have saved by deducting the interest. You're unlikely to notice much difference.

For a higher-rate taxpayer, they don't cancel out at all. You're now taxed on a bigger profit at 40%, but you only get relief back at 20%. That gap is the whole problem with Section 24, and it's where the real money goes.

A worked example: the higher-rate landlord

Take Adam. He owns one buy-to-let outright in his own name, with a decent salary already pushing him into the higher-rate band. The property brings in £20,000 of rent a year. His mortgage interest is £10,000, and he has £2,000 of other allowable expenses.

Under the old rules, his taxable profit was the rent minus everything: £20,000 less £10,000 interest less £2,000 expenses, leaving £8,000. At 40%, that's £3,200 of tax.

Under Section 24, the interest no longer comes off. His taxable profit is £20,000 less only the £2,000 of other expenses, so £18,000. At 40%, that's £7,200. He then claims the tax reducer: 20% of his £10,000 interest, which is £2,000. That brings his bill down to £5,200.

Same property, same rent, same mortgage. Adam pays £5,200 instead of £3,200. Section 24 has cost him £2,000 for the year, and it does that every year he holds the property.

Now picture Adam filling in his own return and entering the interest as an expense, the way it used to work. His figures wouldn't match what HMRC expects, and he'd either misfile or quietly overpay because he never claimed the relief correctly in the first place. This is the error Provestor exists to stop: the residential finance cost restriction handled right, so your interest works as hard as the rules allow and you don't pay a penny more than you owe.

Where do you report it on your tax return?

You don't enter residential finance costs as an ordinary expense. They go in their own box on the SA105, the property pages of your Self Assessment tax return.

There's a dedicated residential finance costs box on the SA105 (box 44), separate from the box for your other allowable expenses. Put the figure in the wrong box and you'll either claim the relief twice or not at all. The SA105 chapter walks through the property pages box by box.

Who does Section 24 hurt most?

Not everyone feels it equally. Three groups carry the weight.

Higher-rate and additional-rate taxpayers. As Adam shows, the wider the gap between your tax rate and the 20% relief, the more it costs. If your other income already fills the basic-rate band, every pound of rental profit is exposed.

Highly geared landlords. The bigger your mortgage relative to your rent, the more interest you're carrying, and the more of it is now stuck behind the 20% restriction. Heavily mortgaged portfolios feel Section 24 hardest.

Anyone the gross rent tips into a higher band. This is the trap people miss. Because your full rent counts as profit before the relief, it inflates your total income. A landlord who was comfortably basic-rate on their day job can find the gross rent dragging them over the higher-rate threshold, or clawing back their Personal Allowance, or affecting Child Benefit. The interest you can no longer deduct is what pushes you there.

That last effect catches out landlords who run the old maths in their head and assume they're fine. On paper they're profitable. On the tax return, the gross figure tells a different story.

What can you still do about it?

Section 24 is the law, so you can't deduct your way around it. But you're not without options.

You can make sure you're claiming every other allowable expense correctly, so the only restricted cost is genuine interest and nothing else is left on the table. The allowable expenses guide covers what counts. You can review how the property is owned, because spreading income towards a lower-earning spouse can change which tax rate the profit meets. And you can look at the structure itself.

This is where the limited company question comes up. Section 24 doesn't apply to companies: a company still deducts its mortgage interest in full before it works out its profit. For some higher-rate landlords with growing, geared portfolios, that difference is large enough to change how they hold property. It isn't right for everyone, and the costs and trade-offs are real, but if Section 24 is genuinely eating your returns, it's a conversation worth having properly rather than guessing at.

Whichever route fits, the starting point is the same: get the finance cost restriction reported correctly, understand what it's actually costing you, then decide from solid figures rather than the old rules you've half-remembered.