UK Landlord Mortgage Interest Deduction: How Section 24 Works in 2026

No. Since Section 24 of the Finance Act 2015 was fully phased in by April 2020, individual UK landlords can no longer deduct mortgage interest from rental income. Instead, you receive a basic rate (20%) tax credit on your mortgage interest payments. This sounds like a technical distinction, but for higher rate taxpayers it can mean paying significantly more tax than before.

What Changed: The Old System vs Section 24

Before Section 24

Under the old rules, landlords could deduct mortgage interest from their rental income before calculating their tax liability. This worked exactly like any other business expense.

If you earned £15,000 in rent and paid £8,000 in mortgage interest, you were taxed on £7,000 of profit. For a higher rate taxpayer (40%), that meant £2,800 in tax.

After Section 24

Under the current system, you declare the full rental income without deducting mortgage interest. You then receive a 20% tax credit on the mortgage interest amount.

Using the same figures:

Under the old system, the same landlord would have paid £2,800. Under Section 24, they pay £4,400 — an increase of £1,600 per year, or 57% more tax.

Why Higher Rate Taxpayers Are Hit Hardest

The tax credit is fixed at 20% regardless of your marginal tax rate. If you pay tax at 20% (basic rate), the credit exactly offsets the loss of the deduction — you are no worse off. But if you pay tax at 40% or 45%, the 20% credit does not fully compensate, and you pay more tax overall.

For a 45% additional rate taxpayer with the same figures, the difference is even larger.

Who Is Affected

Individual Landlords

Section 24 applies to all individual landlords who hold rental properties in their own name or through a partnership of individuals. This is the majority of UK landlords.

Limited Companies — Not Affected

If you hold rental properties through a limited company, mortgage interest remains a fully deductible business expense. The company pays Corporation Tax on its profits after deducting all expenses including mortgage interest. This is one reason some landlords have incorporated their portfolios, though this brings its own costs and complexities.

Furnished Holiday Lets — No Longer Exempt

The Furnished Holiday Lettings (FHL) regime previously allowed full mortgage interest deduction even for individual landlords. However, the FHL tax regime was abolished from April 2025, so this exception no longer applies.

What You Can Still Deduct

Mortgage interest is restricted, but many other expenses remain fully deductible against rental income. According to HMRC's Property Income Manual:

• Letting agent fees and property management costs
• Insurance — landlord buildings and contents insurance
• Repairs and maintenance — fixing a broken boiler, repainting, replacing a cracked window (but not improvements)
• Ground rent and service charges
• Accountancy fees for preparing rental accounts
• Water rates if you pay them on behalf of the tenant
• Council tax during void periods
• Travel costs for property management visits
• Cost of replacing domestic items — carpets, curtains, appliances (replacement only, not initial furnishing)

The distinction between a repair (deductible) and an improvement (not deductible) is important. Replacing a single-glazed window with like-for-like single glazing is a repair. Upgrading to double glazing is an improvement and cannot be deducted as a revenue expense. For a full breakdown of allowable expenses, tax rates, and CGT obligations, see our complete guide to landlord tax obligations.

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Practical Strategies

Keep Accurate Records

Track all rental income and expenses throughout the year. Having clear records makes your annual self-assessment straightforward and ensures you claim every legitimate deduction. A spreadsheet, accounting software, or property management tool all work — the key is consistency. Our landlord compliance checklist covers the full set of documents you need to keep on file.

Review Your Mortgage Arrangements

If Section 24 has significantly increased your tax bill, it may be worth reviewing your mortgage terms. Reducing the mortgage balance, switching to a more competitive rate, or adjusting repayment terms can reduce the overall interest cost — which reduces the tax impact even if you can no longer deduct it fully.

Consider Incorporation Carefully

Some landlords have transferred properties into limited companies to restore full mortgage interest deduction. However, this triggers Stamp Duty Land Tax (SDLT) on the transfer, potential Capital Gains Tax, and additional administrative costs. The decision depends on your portfolio size, income level, and long-term plans. Always take professional advice before restructuring.

Capital Gains Tax on the transfer can sometimes be deferred under Section 162 incorporation relief, which requires the letting activity to amount to a business. If you have been told there is a "20 hours a week" threshold for this, there is not — we explain what the Tribunal actually tests for Section 162 relief and where that figure really came from.

Use Your Personal Allowance and Rate Bands

If you have a spouse or partner who is a lower rate taxpayer, joint ownership of rental properties can reduce the overall tax impact of Section 24. The property income can be split in proportion to ownership shares. Understanding what you can and cannot charge tenants also helps ensure you are maximising legitimate income without falling foul of the Tenant Fees Act.

Frequently Asked Questions

Can I deduct mortgage interest if I use a limited company?

Yes. Section 24 only applies to individual landlords and partnerships of individuals. Limited companies continue to deduct mortgage interest as a normal business expense before paying Corporation Tax on profits. However, incorporating a portfolio involves SDLT, potential CGT, and ongoing compliance costs — consult a qualified accountant before making this decision.

Are there any exceptions to the Section 24 restriction?

The main exception was the Furnished Holiday Lettings (FHL) regime. However, the FHL tax regime was abolished from April 2025, so no general exceptions remain for individual landlords. The restriction applies to all residential letting by individuals in the UK.

What other expenses can UK landlords still deduct from rental income?

You can deduct letting agent fees, property insurance, ground rent and service charges, accountancy fees, repairs and maintenance (not improvements), water rates if you pay them, council tax during void periods, travel costs for property management, and the cost of replacing domestic items like carpets and appliances. See HMRC's guidance on rental income for the complete list.

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This article is for informational purposes only and does not constitute tax or legal advice. Tax rules are complex and depend on individual circumstances — always consult a qualified accountant or tax adviser.