Buy-to-let tax: what Section 24 changed
Every American property book runs the same sum: collect the rent, subtract the mortgage, pay tax on what is left. British landlords lost that arithmetic in April 2020, and for a geared higher-rate landlord the difference is most of the profit.
Run your own numbers
Put your rent, your interest, your other costs and your salary in. The bars are your real profit, your tax bill, and what is actually left.
What this leaves out. National Insurance, the £1,000 property allowance, and the edge cases that can cut the relief further still. It assumes the property is held in your own name rather than through a company. Every one of those omissions flatters the result, so read the figures as the optimistic end of the range and not as your bill.
The default figures are an ordinary let rather than an extreme one: £15,000 of rent, £9,000 of interest, £2,000 of costs, against a £60,000 salary. Real profit £4,000. Tax bill £3,400. You keep £600 of £4,000 — an effective rate of 85% on money you genuinely made. Under the old rules the same let cost £1,600.
Push the interest to £12,000 and the tax bill passes the profit entirely. The let earns you money and loses you money at the same time, which is not a situation the arithmetic in the books can even describe.
What actually changed
Mortgage interest used to be an ordinary business expense. You added up the rent, took off the interest and the running costs, and paid tax on the profit that remained. That is the arithmetic in every property book written for an American reader, and it is the arithmetic most people still carry in their heads.
The finance cost restriction, phased in from April 2017 and fully in force since 6 April 2020, removed it. Now:
- You are taxed on rent minus your other costs. The mortgage interest is not subtracted.
- The interest comes back separately, as a tax reduction worth the basic rate of it — 20%.
- The reduction is capped at the lower of your finance costs and your property profits.
Only the interest element of the payment was ever deductible, so this is not about capital repayment. And it applies to individuals. Companies are not affected, which is the whole reason the next section exists.
Why it barely touched some landlords and gutted others
If you pay basic-rate tax, the arithmetic very nearly cancels. You are taxed an extra 20% on the interest and handed 20% back. The bill is the same as it always was.
If you pay higher-rate tax, it does not cancel at all. You are taxed at 40% on rent that goes straight to your lender, and compensated at 20%. That 20-point gap, applied to your whole interest bill, is Section 24 in one line.
Worse, the restriction inflates the income HMRC sees. Because the interest is no longer deducted, your taxable income is higher than your real income — which is how a basic-rate landlord becomes a higher-rate one on paper, and starts losing the very relief they were relying on.
The company route, and what it really costs
Because the restriction applies to individuals and not to companies, a great many British landlords now hold property through one. A company deducts its finance costs the ordinary way, so Section 24 does not reach it.
That is a real structural difference, and it is also the point at which people stop reading and start incorporating, which is a mistake. Moving property into a company is a sale: stamp duty is due on the way in, capital gains tax may be due on the way out of your own name, and any profit you later take out of the company is taxed again in your hands. Whether the sums work depends entirely on your own position, which is exactly the kind of question a page like this cannot answer for you and a regulated adviser can.
Two more numbers before you start
Getting in. Stamp Duty Land Tax on residential property runs at nothing to £125,000, 2% to £250,000, 5% to £925,000, 10% to £1.5 million and 12% above. A purchase leaving you owning more than one property adds 5% across the whole price. On a £300,000 second property that is £20,000 rather than £5,000.
Getting out. Capital Gains Tax takes 18% of gains within your basic rate band and 24% above it, after a £3,000 annual exempt amount. There is no longer a separate residential rate, and there is no British equivalent of a 1031 exchange — nothing lets you roll the gain into the next purchase.
What changes again in 2027
From the 2027 to 2028 tax year the finance cost relief moves to a separate property basic rate of 22%. That narrows the gap for a higher-rate landlord by two percentage points. It does not close it, and it does not change the shape of the problem.
What the book still gets right
The instinct that started all this survives Section 24 completely: judge a property by the direction money moves each month rather than by what it is worth on paper. If anything the restriction makes it more urgent, because the tax now falls on a number that is not your profit.
What does not survive is the sequence: buy, gear up, deduct the interest, repeat. That sequence was written about a country with different rules.
This is general information. It is not financial advice. Honelo is not authorised or regulated by the Financial Conduct Authority, and nothing here is a personal recommendation to buy, sell, hold or switch any investment, property, pension or product. Property and tax structuring in particular turn on facts specific to you.
Figures are for the 2026/27 UK tax year and were taken from gov.uk on 30 August 2026. Tax rules, allowances and rates change, so check gov.uk before acting, and use a regulated adviser or an accountant for your own situation. You can check the register at register.fca.org.uk. For free impartial guidance, see MoneyHelper.