5 min read · Updated 2026-06-17
If you're a landlord with a mortgage, there's a good chance you're paying more tax than your own maths suggests — and that the gap is invisible unless you know exactly where to look. It has a name: Section 24, sometimes called the tenant tax or the finance cost restriction.
Before the rules changed, being a landlord worked the way most business owners expect: you took your rent, subtracted your costs — including mortgage interest — and paid tax on the profit left over.
Section 24 ended that for residential landlords. Mortgage and other finance interest is no longer a deductible expense. Instead, you get a basic-rate tax reduction worth 20% of your interest, applied after your tax is calculated.
For a basic-rate taxpayer, the two approaches land in roughly the same place. For anyone paying higher-rate (40%) or additional-rate (45%) tax, they do not — and that difference is the whole story.
The change has two effects that stack. First, because your interest is no longer subtracted before tax, your taxable income is higher on paper — and that larger figure is what decides which tax band you fall into. The interest you pay can be the very thing that tips you over the higher-rate threshold.
Second, once you're a higher-rate taxpayer your profit is taxed at 40%, but you only get relief on your interest at 20%. You're effectively taxed at one rate and relieved at half of it.
Take a landlord whose salary already uses most of the basic-rate band, plus a rental property: rent received £18,000, allowable running costs £3,000, and mortgage interest £9,000.
The instinctive sum is £18,000 minus £3,000 minus £9,000 = £6,000 profit, taxed at 40% — about £2,400.
But under Section 24 the interest isn't subtracted first. The taxable rental figure is £18,000 minus £3,000 = £15,000, taxed at 40% (£6,000), then reduced by a 20% credit on the £9,000 interest (£1,800). The real bill is closer to £4,200.
That gap between £2,400 and £4,200 is the wedge — the extra tax the simple maths misses. It's real money, and most spreadsheets never show it.
Basic-rate landlords with little or no borrowing are largely unaffected.
This is general information, not tax advice — but the levers landlords commonly look at are knowing their real number first, making sure the 20% credit is actually being applied, and in some cases holding property through a limited company (where interest is still a deductible cost, though that carries its own trade-offs and is worth proper advice).
Most tools either ignore the finance cost restriction or bury it. Plot's free calculator surfaces the wedge directly: enter your salary, rent, costs and mortgage interest, and it shows what the simple maths says versus what you actually owe under the rules, with the 20% credit applied automatically.
From 6 April 2026, landlords and sole traders with qualifying income over £50,000 must keep digital records and send quarterly updates to HMRC, with the first due by 7 August 2026. The threshold drops to £30,000 in 2027 and £20,000 in 2028. If you already understand your numbers, Making Tax Digital is mostly about reporting them on a schedule — and Plot keeps your position live so there's no surprise at filing time.
Not as a full expense. Since April 2020, finance costs are restricted under Section 24: instead of deducting interest you receive a basic-rate tax reduction worth 20% of it.
Higher- and additional-rate taxpayers and highly-geared landlords, because they're taxed on profit at 40% or 45% but only relieved on interest at 20%. Basic-rate landlords with little borrowing are largely unaffected.
No. Companies that hold property can still deduct mortgage interest as a business cost. That's one reason some landlords consider incorporating — though it brings its own tax, mortgage and admin trade-offs and warrants professional advice.