The mortgage interest tax relief changes introduced by Section 24 represent one of the most significant shifts in UK property taxation in recent years. For individual landlords, these changes have fundamentally altered how mortgage costs are treated for tax purposes.

If you're a buy-to-let landlord still coming to terms with these rules, or considering your options for the 2025/26 tax year, this guide explains what you need to know.

What Changed with Mortgage Interest Tax Relief

Before Section 24, landlords could deduct their full mortgage interest payments from their rental income as a business expense. This reduced their taxable profit pound-for-pound.

The old system meant if you earned £20,000 in rental income and paid £8,000 in mortgage interest, you were only taxed on £12,000 of profit. Simple and straightforward.

Section 24 changed this completely. Now, individual landlords can only claim a 20% tax credit on their mortgage interest payments, regardless of their marginal tax rate.

How the 20% Tax Credit Works

Under the current system, mortgage interest is no longer deducted from your rental income. Instead, it's added back to your profit calculation, then you receive a 20% tax credit.

Here's a practical example: A landlord with £30,000 rental income and £12,000 mortgage interest payments.

  • Old system: Taxable profit = £18,000 (£30k - £12k)
  • New system: Taxable profit = £30,000, but you get a £2,400 tax credit (20% of £12k)

For higher-rate taxpayers, this creates a significant tax burden. You're paying 40% tax on the full £30,000 but only getting 20% relief on the mortgage interest.

The Real Impact on Different Tax Brackets

The mortgage interest tax relief changes affect landlords differently depending on their total income and tax bracket.

Basic Rate Taxpayers

If your total income (including rental profit) keeps you in the 20% tax band, the impact is neutral. You pay 20% tax and get 20% relief – the same net effect as before.

Higher Rate Taxpayers

This is where Section 24 bites hardest. Higher-rate taxpayers pay 40% tax on their full rental income but only receive 20% relief on mortgage interest.

Take a landlord earning £60,000 from their day job plus £25,000 rental profit (after all expenses except mortgage interest of £10,000):

  • Total taxable income: £95,000 (£60k + £35k rental income)
  • Additional tax on rental income: 40% on £35,000 = £14,000
  • Mortgage interest relief: 20% of £10,000 = £2,000
  • Net additional tax: £12,000

Pushed Into Higher Rate Tax

Perhaps most frustrating are landlords pushed from basic rate into higher rate tax by the gross rental income calculation. You might have modest actual profits, but Section 24 inflates your taxable income significantly.

Additional Consequences You Need to Consider

The mortgage interest tax relief changes create several knock-on effects that many landlords overlook initially.

Child Benefit Clawback

Higher taxable income can trigger the High Income Child Benefit Charge. This affects anyone earning over £50,000, with child benefit fully clawed back at £60,000.

Personal Allowance Reduction

Once your adjusted net income exceeds £100,000, you start losing your personal allowance. This creates an effective 60% tax rate on income between £100,000 and £125,140.

Student Loan Repayments

Higher reported income can increase student loan repayments, even if your actual cash profit hasn't changed.

Strategies to Manage the Impact

While Section 24 is here to stay for individual landlords, several strategies can help manage its impact.

Property Company Structure

Limited companies aren't affected by Section 24. They can still deduct mortgage interest as a business expense, paying corporation tax on actual profits.

For many landlords, incorporation has become an attractive option, though it brings its own complexities around extraction of profits and capital gains.

Pension Contributions

Increasing pension contributions can reduce your adjusted net income, potentially keeping you in a lower tax bracket or avoiding benefit clawbacks.

Spouse Income Splitting

If your spouse is a basic rate taxpayer, transferring properties to them (or holding jointly) can reduce the overall tax burden.

Portfolio Optimization

Consider whether lower-yielding, less mortgaged properties make more sense in the current environment. The math has fundamentally changed for highly geared investments.

Making the Numbers Work

Before making any major decisions about your property portfolio, it's essential to model the actual impact of these changes on your specific situation.

Our calculators can help you understand how Section 24 affects your tax position and whether strategies like incorporation might benefit you.

Every landlord's situation is different. Factors like your other income, family circumstances, long-term plans, and risk tolerance all influence the best approach.

Looking Ahead

With Making Tax Digital for Income Tax Property starting in April 2026, landlords will need even more robust record-keeping and reporting processes.

The mortgage interest tax relief changes aren't going anywhere. If anything, the trend suggests continued scrutiny of property investment tax advantages.

Understanding these rules and planning accordingly isn't just about minimizing this year's tax bill – it's about ensuring your property portfolio remains viable and profitable in the long term.

Given the complexity of these changes and their interaction with other areas of tax, most landlords benefit from specialist advice tailored to their circumstances. The team at Property Tax Partners works exclusively with property investors and understands the practical challenges these rules create.