Section 24 explained: why your mortgage interest isn't fully deductible

Section 24 of the Finance (No. 2) Act 2015 changed how UK landlords can deduct mortgage interest. Phased in from 2017 to 2020, it now means:

You can't deduct interest as an expense

Instead, you receive a 20% tax credit on the interest portion of your mortgage.

For a basic-rate (20%) taxpayer, this is roughly the same outcome as the old rules. For higher-rate (40%) and additional-rate (45%) taxpayers, the bill is materially higher.

The hidden trap: gross income

Because the interest is no longer an expense, your gross rental income (before interest) is added to your other income for the purpose of working out your tax band. Many landlords who used to be basic-rate are now higher-rate, even though their actual cash position hasn't changed.

A simplified example

• Rental income £24,000
• Mortgage interest £15,000
• Other expenses £3,000

Old rules: profit = £24,000 - £15,000 - £3,000 = £6,000. Tax at 20% = £1,200.

Section 24 rules: profit shown to HMRC = £24,000 - £3,000 = £21,000. Tax at 20% = £4,200, then a £3,000 credit (20% of £15,000) = £1,200 net. Same result.

But add a £40,000 day job, and the £21,000 of "profit" pushes part of your income into the 40% band. Your tax now jumps and the 20% credit doesn't fully offset it.

Mitigations to consider

1. Limited company structure (no Section 24 if you hold properties via a Ltd, but watch out for SDLT, CGT, and double taxation on dividends).
2. Transferring to a lower-earning spouse (form 17 election).
3. Reducing leverage by paying down mortgage principal.

What havelo can show you

The dashboard shows monthly income and total expenses. Pair that with your accountant's tax return and you'll see immediately whether Section 24 is biting.

This is not tax advice. Speak to a qualified accountant before restructuring.