Section 24 Explained: What UK Landlords Actually Pay in Tax (2026 Numbers)

Section 24 removed the ability for individual UK landlords to deduct mortgage interest from rental income before tax, replacing it with a flat 20% tax credit. The result: higher-rate taxpayers pay materially more tax than they did before, and limited company ownership became a genuinely competitive alternative for the first time. This guide walks through the 2026 numbers, with worked examples on the same £300k BTL property held personally versus inside a company.

Key Takeaways

• No Full Mortgage Interest Deduction: Individual landlords can no longer deduct mortgage interest from rental income before tax. They get a flat 20% tax credit instead.
• Higher-Rate Taxpayers Lose Most: If you pay 40% income tax on your other earnings, Section 24 hits you hardest. The 20% credit does not compensate for losing a 40% deduction.
• Limited Companies Are Exempt: Section 24 applies to individuals, not corporates. Limited company landlords still deduct mortgage interest as a full business expense.
• The Break-Even Depends on Leverage: The more mortgage debt you carry against rental income, the more Section 24 hurts. High-LTV portfolios feel it most; low-leverage portfolios barely notice.

Jump to section:

• What Section 24 Actually Is
• How the Calculation Works Now
• Worked Example: Personal vs Limited Company
• When Section 24 Hits Hardest
• Common Section 24 Misconceptions
• The Broader Investor Takeaway
• Explore: Berkeley Square, Manchester

What Section 24 Actually Is

Before April 2017, UK landlords calculated their rental profit by deducting mortgage interest (along with letting agent fees, maintenance, insurance and other allowable expenses) from rental income. Whatever was left was taxable at their marginal income tax rate.

Section 24 of the Finance (No. 2) Act 2015 changed that. Between 2017 and 2020, mortgage interest was progressively phased out as a deductible expense for individual landlords, and replaced with a 20% tax credit against the tax due.

For basic-rate taxpayers, the change was roughly cash-flow neutral. For higher-rate (40%) and additional-rate (45%) taxpayers, it caused a meaningful and permanent increase in their tax bill on rental income. The full details of the change sit on gov.uk's landlord tax page.

Quick FAQ:

Q: Does Section 24 apply to me if my rental property is not mortgaged?

A: No. Section 24 only affects the tax treatment of mortgage interest. If your rental property is unencumbered, your tax bill has not changed under Section 24 at all, you deduct all other allowable expenses as before.

How the Calculation Works Now

Under Section 24, an individual landlord's rental profit is calculated as follows:

1. Take total rental income
2. Deduct allowable expenses (letting fees, maintenance, insurance, ground rent, service charge, accountancy), but NOT mortgage interest
3. The resulting figure is added to your other taxable income
4. Total tax is calculated at your marginal rate
5. Finally, you receive a tax credit equal to 20% of your mortgage interest, deducted from the tax due

This is subtly but importantly different from the old system. Because mortgage interest is no longer deducted at Step 2, it inflates your taxable rental profit, which can push you into a higher tax bracket even though your actual cash profit has not changed.

Worked Example: Personal vs Limited Company

Both scenarios use the same underlying property. Figures are illustrative for 2026 tax rules, always confirm your specific position with an accountant.

The property

• £300,000 Manchester BTL apartment
• 75% LTV mortgage (£225,000) at 5.5% interest = £12,375 annual interest
• Rental income: £16,800/year (£1,400/month)
• Other allowable expenses (letting, maintenance, insurance, service charge, accountancy): £3,000/year

Scenario A: Higher-rate individual landlord (40% marginal rate)

• Rental income: £16,800
• Less allowable expenses (NOT mortgage interest): £3,000
• Taxable rental profit: £13,800
• Tax at 40%: £5,520
• Less 20% mortgage interest credit (20% x £12,375): £2,475
• Total tax owed: £3,045
• Cash left after tax and mortgage interest: negative £1,620 per year (a loss)

Scenario B: UK limited company owner (25% corporation tax above £50k, 19% below)

• Rental income: £16,800
• Less allowable expenses (including full mortgage interest of £12,375): £15,375
• Taxable profit: £1,425
• Corporation tax at 19% (assuming small company rate): £270.75
• Total tax owed: £271
• Cash left after tax and mortgage interest: £1,154 per year retained in company

The gap between personal and limited company ownership on this exact property, for a higher-rate taxpayer, is over £2,700 per year, before you have even considered eventual dividend or capital extraction tax.

Quick FAQ:

Q: Is the limited company always better?

A: No. For basic-rate taxpayers, or low-leverage portfolios (LTV under 50%), personal ownership can still be simpler and cheaper overall, especially once you factor in the cost of eventually extracting profit from a company via dividends or salary.

When Section 24 Hits Hardest

The size of the Section 24 impact depends on three variables:

1. Your marginal income tax rate, 40% and 45% taxpayers feel it most.
2. Loan-to-value ratio, higher LTVs create more mortgage interest, which magnifies the effect.
3. The gap between mortgage rates and rental yields, when yields are compressed and rates are elevated, Section 24 can push portfolios into negative territory.

A landlord with a fully-paid-off portfolio barely notices Section 24 exists. A landlord with 75% LTV across five apartments and a 40% marginal rate can see their post-tax return halve, or, in extreme rate environments, disappear.

Common Section 24 Misconceptions

"I can just switch my existing portfolio into a limited company."

Transferring existing properties into a company is a taxable event, you effectively sell to your own company, potentially triggering both SDLT (with the 3% surcharge) and Capital Gains Tax on any gain since purchase. Full incorporation relief exists but is narrow and requires professional advice.

"Section 24 will be reversed."

It has been in place since 2017 and no serious political party has committed to reversing it. Investors should plan around it as a permanent feature of the UK BTL landscape.

"I can just remortgage to reduce Section 24 exposure."

Reducing your LTV directly reduces Section 24 exposure, but only because you are paying less mortgage interest. It is not a workaround, it is just carrying less debt.

Quick FAQ:

Q: Should new investors start out with a limited company from day one?

A: For higher-rate taxpayers building a portfolio, usually yes. The tax efficiency compounds across multiple properties, and you avoid the incorporation problem entirely. For a single low-leverage BTL, the additional accountancy costs of a company may outweigh the tax saving. See our limited company BTL guide.

The Broader Investor Takeaway

Section 24 permanently reshaped the UK BTL landscape. Portfolios that were profitable under the old regime became loss-making for many higher-rate taxpayers. The response, visible in HMRC data, has been a decisive shift toward limited company ownership for new BTL purchases, particularly among higher-earning investors.

For anyone building a UK BTL position from scratch in 2026, understanding Section 24 is not optional. It shapes structure choice, leverage decisions, and even which price bands to buy in. Combined with the SDLT rules covered in our Stamp Duty for BTL Investors 2026 guide, it forms the foundation of any credible UK BTL investment model.

Explore: Berkeley Square, Manchester

Completed new-build apartments in Manchester's Pomona Island, delivering the yield profile and rental demand needed to work efficiently either personally or inside a limited company. Immediate rental income, no build risk, and clear tax modelling available on request.

• Location: Pomona Island, Manchester
• Status: Completed and ready to move in
• Structure fit: Yields work under both personal and LTD structures, contact team for scenario modelling

Rothmore's View

Section 24 makes structure choice the most important decision a new UK BTL investor makes. Sophisticated investors model both personal and limited company scenarios before they commit to a specific property, precisely because Section 24 can turn what looks like a positive-yield BTL into a loss-making one at 40% tax.

If you want to see how Section 24 lands on a specific Rothmore development, our investment team can walk you through personal vs limited company modelling on real numbers. Get in touch.

Disclaimer: Rothmore Property does not provide tax advice. All figures in this guide are illustrative for the 2026 UK tax regime. Corporation tax bands, personal income tax rates, and Section 24 rules can change in future Budgets. Always confirm your specific tax position with a qualified accountant before making structural decisions about your portfolio.