Buy-to-let yield & Section 24 tax
Section 24 tax for a landlord in 2026/27 is worked out on rent minus running costs, with no deduction for mortgage interest. Instead a 20% tax reducer is applied to finance costs, under the Finance (No. 2) Act 2015 rules on gov.uk. This raises the effective tax rate for higher and additional rate landlords.
How does Section 24 change the maths on my tax bill?
Before 2017 a landlord deducted mortgage interest from rental income and paid tax on the profit left over. Section 24 of the Finance (No. 2) Act 2015 removed that deduction for individual landlords. The full rent minus running costs is now taxed, and the interest comes back only as a 20% tax reducer, as explained in HMRC's guidance on tax relief for residential landlords. For a basic rate taxpayer the two changes roughly cancel out. For rental profit that falls in the 40% or 45% band, tax is paid at that rate on income partly absorbed by the mortgage, with only 20% of the interest given back.
There is a second effect. The rental profit is added to other income before the credit is applied. This can push a landlord into a higher band. It can also restrict the Personal Allowance above £100,000, or trigger the High Income Child Benefit Charge. The 20% credit does not reverse either of those effects.
What does a Section 24 worked example look like?
Take a rent of £14,400, running costs of £2,500 and mortgage interest of £7,000, on top of £55,000 of salary. The taxable rental profit is £11,900, since interest is not deducted under Section 24. That profit is taxed at the higher rate, costing £4,760. A 20% credit of £1,400 is then deducted, leaving a bill of £3,360. The real cash profit after the mortgage was only £4,900, so the effective tax rate is 68.6%. Under the pre-2017 rules the bill would have been £1,960, so Section 24 costs this landlord an estimated £1,400 a year.
Common questions
What is Section 24?
Section 24 of the Finance (No. 2) Act 2015 removed the ability of individual landlords to deduct mortgage interest and other finance costs from rental profit. Since 2020/21 you instead get a tax reducer worth 20% of those costs. For a basic-rate landlord the effect is broadly neutral, but for a higher-rate landlord it raises the tax bill.
Why does my tax rate look higher than 40%?
Because the rent is taxed before interest is taken off, but you only get relief on the interest at 20%. On the money you actually keep after paying the mortgage, the effective rate can sit well above your headline band, and in some cases the property can be taxed into a loss. This is the core Section 24 problem.
How is rental yield calculated here?
Gross yield is annual rent divided by the property value. Net yield is annual rent minus running costs (letting fees, insurance, maintenance, ground rent) divided by the value. Net yield here excludes mortgage interest, because yield measures the property, while the mortgage is a financing choice.
Does Section 24 affect limited company landlords?
No. The restriction applies to individuals. A company that owns rental property deducts finance costs against profit in the normal way and pays Corporation Tax. That is why many higher-rate landlords have moved property into companies, though that brings its own stamp duty and administration costs.
What counts as a finance cost?
Mortgage interest is the main one. It also covers interest on loans to buy furnishings, and incidental costs of getting a loan such as arrangement fees. Capital repayments are not a finance cost and were never deductible.
How does Section 24 change the maths on my tax bill?
Full rent minus running costs is taxed, with mortgage interest added back only as a 20% tax reducer. A basic rate landlord sees little change, but a higher or additional rate landlord pays tax at that rate on income partly absorbed by the mortgage, with only 20% of the interest given back as a credit.
What does a Section 24 worked example look like?
On rent minus costs and interest against other income, the taxable rental profit is taxed at the landlord’s marginal rate, then a 20% credit on finance costs is deducted to leave the Section 24 tax bill. Comparing that bill with the old, pre-2017 rules shows the extra tax the restriction causes each year.
Sources & Rate Verification
Rates verified against official statutory guidance on 6 September 2026.