Section 24 landlord tax — what the buy-to-let mortgage interest restriction means for your net income, with worked examples
Last updated: May 2026
Section 24 of the Finance (No. 2) Act 2015 is the legislation that removed individual buy-to-let landlords' right to deduct mortgage interest as a business expense — a change that has significantly reduced net rental income for higher-rate taxpayers since it came into full effect in April 2020.
This page explains exactly how the restriction works, who it affects most, and what the actual net income comparison looks like between a long-term tenancy and a professionally managed short-let when both are calculated on the same Section 24 basis.
It covers the April 2025 FHL abolition — which brought former Furnished Holiday Let landlords into the Section 24 regime for the first time — and gives honest, worked-through examples rather than best-case projections.
Tax treatment depends on individual circumstances and this page does not constitute tax advice — always confirm your position with a qualified accountant before making changes to your letting strategy.
Section 24 restricts individual landlords from deducting mortgage interest from rental income. Instead of offsetting the full interest cost against taxable profit, you receive a 20% tax credit on the interest paid. The impact is heaviest for higher-rate taxpayers — it can turn a modestly profitable long-let into a barely break-even position. The comparison below shows what this means for net return on a typical mortgaged property, with short-term letting figures calculated on the same basis.
vs long-let net uplift
UK — 189 enquiries
net/mo via Stayful
— honest comparison
Conservative estimate based on Stayful UK enquiry data, 189 comparable properties. Section 24 applies to both LTR and STL income for individual landlords. Individual results will vary and are not guaranteed. Always confirm your tax position with a qualified accountant.
What Section 24 changed — and why it hits higher-rate taxpayers twice as hard
Before Section 24, a landlord could deduct all their mortgage interest from their rental income before calculating the taxable profit.
After Section 24, that deduction was removed — the landlord now pays income tax on the full rental income (minus allowable expenses other than mortgage interest) and then receives a tax credit equal to 20% of the interest paid.
After: Tax on (rental income − other expenses), then subtract 20% of mortgage interest as a credit
For basic-rate taxpayers at 20%, the maths works out identically. For 40% taxpayers, the effective cost of Section 24 is 20% of the annual mortgage interest — taken as additional tax.
The reason the impact is disproportionate for higher-rate taxpayers is that their marginal rate exceeds the 20% credit rate — every pound of mortgage interest now costs them 20 pence more in tax than it did before the restriction.
There is a second, less obvious impact: because mortgage interest can no longer be deducted before calculating taxable income, some landlords who would previously have remained in the basic-rate band now find themselves pushed into higher-rate territory by the gross rental income figure.
The before-and-after worked example — what a typical mortgaged buy-to-let actually earns now
The examples below use a property generating £15,000 annual rental income with £8,000 annual mortgage interest — a realistic scenario for a two-bedroom property in many English cities.
Both examples assume the landlord is a 40% higher-rate taxpayer and has £1,500 of other allowable expenses.
Who Section 24 applies to — and what the April 2025 FHL abolition changed
Section 24 applies to individual landlords — people who own residential rental property in their own name or in a partnership — who have mortgage finance on their rental properties.
It does not affect limited companies, which can still deduct mortgage interest in full as a business expense and pay corporation tax on the net profit.
It does not affect commercial property landlords — the restriction applies specifically to residential lettings.
From April 2025, it applies to former Furnished Holiday Let landlords whose properties no longer qualify as FHLs following the abolition of that regime — bringing a significant number of holiday let owners into the Section 24 net for the first time.
Before April 2025, properties qualifying as Furnished Holiday Lets under HMRC's criteria were treated as a business rather than a residential letting — meaning mortgage interest could be deducted in full and Section 24 did not apply.
From the 2025/26 tax year, the FHL regime was abolished entirely.
Former FHL properties are now treated as standard residential property income — meaning Section 24 applies to them for the first time, and mortgage interest can no longer be fully deducted.
If you previously benefited from FHL status and have not yet updated your tax calculations to reflect this change, you should seek accountancy advice for the 2025/26 tax year and beyond.
No — Section 24 does not apply to limited companies.
A company that owns residential rental property can deduct mortgage interest in full as a business expense, paying corporation tax only on the net profit.
This is the primary reason many portfolio landlords have incorporated their property businesses since 2017 — the tax treatment is materially different.
However, incorporation involves stamp duty, capital gains tax, legal and accounting costs — and the decision depends heavily on individual circumstances, mortgage terms, and long-term intentions for the portfolio.
This is a significant financial decision that requires specialist accountancy and legal advice — do not incorporate based on this page alone.
Can switching to short-term letting help? — the honest answer, with Section 24 applied to both sides
Switching from a long-term tenancy to a managed short-let does not avoid Section 24 — individual landlords who let properties short-term are still subject to the restriction on mortgage interest relief.
The April 2025 FHL abolition confirmed this: there is no longer a short-let equivalent to the old FHL regime that exempts qualifying properties from Section 24.
What changes is the gross income figure — and that difference is often substantial enough to improve your net position materially, even with Section 24 applying equally to both models.
What the income comparison looks like with Section 24 applied equally to both models
The example below uses the same property, the same mortgage, and the same Section 24 rules on both sides — the only variable is the letting model.
Annual net after all costs: £1,700. Gross rental income £15,000, mortgage interest £8,000, other expenses £1,500, tax payable £3,800 (40% taxpayer after 20% credit).
Worst-case scenario if property voids add: net approaches zero
Annual net after all costs: £3,622. Gross STL income £22,200 (48% uplift), Stayful fee £3,996, other expenses £1,500, mortgage £8,000, tax payable £5,082 (40% taxpayer after 20% credit).
Worst month (January): approximately £140–180 net on equivalent basis
What landlords typically do about Section 24 — the main strategies and how they interact with short-term letting
For landlords who want to maintain the same net income after Section 24, the most direct approach is to increase the gross rental income enough to offset the increased tax burden.
This is partly why rents have risen in the long-let market since 2020 — many landlords have passed the Section 24 cost on to tenants, leading to the legislation being referred to as the "tenant tax" in some commentary.
Switching to short-term letting achieves an income increase through a different mechanism — higher nightly rates and more flexible pricing — without the tenant relations implications of raising a sitting tenant's rent.
The income estimate shows you what a comparable short-let would generate for your specific postcode, based on Stayful's own managed portfolio data rather than projections.
Moving residential rental property into a limited company removes it from the Section 24 regime — the company pays corporation tax on net profit and can deduct mortgage interest in full.
The process involves transferring property ownership to the company, which typically triggers stamp duty land tax and potentially capital gains tax — both of which can be substantial depending on the property value and existing gain.
The economics of incorporation depend heavily on the individual's tax position, the size of the portfolio, long-term plans for the properties, and mortgage terms — many lenders charge materially higher rates for company-held buy-to-let mortgages.
This is a significant structural decision that requires specialist tax and legal advice — the maths does not always favour incorporation once all the transfer costs and ongoing compliance costs are included.
For properties with high loan-to-value mortgages and relatively modest rental yields, Section 24 can turn what was previously a small annual profit into a net loss after tax — meaning the landlord is effectively subsidising their tenants' accommodation while carrying all the property risk.
In those cases, selling the property and reinvesting the equity elsewhere — or converting to short-term letting to increase the gross income — is often the financially rational response.
Before selling, it is worth running the income estimate to understand what the short-let alternative would generate for the specific property — some landlords who assumed their property wasn't suitable for short letting have found it performs materially better than they expected.
From enquiry to first booking — what switching from a long-term tenancy to Stayful looks like in practice
Enter your postcode and property type — takes 2 minutes. Net figure shown, with management costs already deducted. Quiet months included, not just peak.
We walk through your property, your letting history, and your timeline. If a Section 24 calculation has prompted the switch, we can refer you to accountancy partners who specialise in landlord tax.
Professional photography, listing creation across all five platforms, dynamic pricing from day one. Your property does not need to sit empty between the tenancy ending and the first short-let booking.
Stayful handles everything — guests, pricing, cleaning, maintenance, income reporting. Monthly income paid 1st–5th. Rolling monthly contract — no lock-in.
Everything Stayful manages — so you're not running a second job on top of the tax paperwork
What separates full-service management from self-managing the switch from a long-let
| Feature | Stayful | Typical local agent |
|---|---|---|
| Management fee | 15% + VAT | 20–25% + VAT |
| Setup fee | £0 | £300–£500 |
| Platforms | Airbnb, Booking.com, VRBO, Google, Direct | Airbnb only typically |
| Direct booking channel | 40% of bookings ✓ | Not available |
| Dynamic pricing | ✓ | ✗ |
| Owner reporting | Monthly income statements ✓ | Basic annual summary |
| Accountancy referrals | Available during onboarding ✓ | Not provided |
| Contract length | Rolling monthly | 12 months minimum |
Section 24 at a glance — how the tax calculation changed and what it costs a 40% taxpayer
LTR vs STL with Section 24 applied to both — the full net income comparison on the same property
The questions landlords ask about Section 24 — answered directly
Section 24 of the Finance (No. 2) Act 2015 — sometimes called the mortgage interest restriction or the "tenant tax" — is the legislation that removed individual buy-to-let landlords' right to deduct mortgage interest as a business expense from their rental income.
Before Section 24, landlords paid income tax on rental profit after deducting mortgage interest, reducing the taxable amount significantly for heavily mortgaged properties.
After Section 24, the taxable amount is calculated on the full rental income minus allowable expenses other than mortgage interest — and the landlord receives a 20% tax credit on the interest paid, rather than a full deduction.
The change came into full effect in April 2020 and has significantly increased the effective tax rate for higher-rate taxpaying landlords with mortgaged residential rental properties.
For basic-rate taxpayers, Section 24 typically has no material impact — the 20% credit rate matches their marginal rate, so the maths works out the same as the old system.
For higher-rate taxpayers, Section 24 increases the effective tax cost of every pound of mortgage interest by 20 pence — the difference between the 40% marginal rate and the 20% credit rate.
There is also a band-creep effect: because mortgage interest is no longer deducted before calculating taxable income, some landlords who were previously basic-rate taxpayers find themselves pushed into the higher-rate band by the gross rental income figure.
The worked examples above show the calculation in detail — the actual impact on your position depends on your full income picture, which a qualified accountant can model accurately.
Yes — Section 24 applies to individual landlords who let properties short-term, just as it does to long-term letting.
Until April 2025, properties qualifying as Furnished Holiday Lets were exempt from Section 24 because they were treated as a business rather than a residential letting.
The FHL regime was abolished in April 2025 — former FHL landlords are now subject to Section 24 from the 2025/26 tax year.
Switching from a long-term tenancy to short-term letting does not avoid Section 24 — but the income uplift from a well-managed short-let can substantially improve the net position even with Section 24 applying to both models.
No — Section 24 applies to individual short-let operators on mortgaged residential property, in the same way it applies to long-let landlords.
The FHL exemption that previously allowed qualifying holiday let properties to deduct mortgage interest in full was abolished in April 2025.
What switching to short-term letting does is increase the gross income — typically 48–66% above the long-let equivalent at the UK conservative range — meaning the absolute net income is often materially higher even with Section 24 applying to both, as the worked example above shows.
The 20% tax credit is applied after your income tax is calculated — not before, as the old deduction was.
After calculating the income tax on your full rental income (minus allowable non-finance expenses), you subtract 20% of your annual mortgage interest from the tax owed.
If your mortgage interest for the year was £8,000, the credit is £1,600 — this reduces your tax bill by £1,600 regardless of your marginal rate.
For a 20% basic-rate taxpayer, this effectively produces the same result as the old deduction. For a 40% taxpayer, it results in a £1,600 annual tax reduction against what would otherwise be a £3,200 deduction — a £1,600 difference in tax paid per year on the same mortgage interest figure.
Section 24 is sometimes called the "tenant tax" because many landlords whose net income was squeezed by the restriction responded by raising rents — passing the effective tax increase on to their tenants in the form of higher monthly payments.
The term reflects the argument that the legislation, intended to reduce buy-to-let landlord profitability and free up housing stock for owner-occupiers, had the unintended consequence of reducing rental supply and increasing rents in the private rented sector.
Whether that characterisation is fair is contested — but the practical impact on the economics of long-term letting for higher-rate taxpayers has been significant and largely as described by the worked examples above.
No — Section 24 applies only to individual landlords, not to limited companies.
A company that holds residential rental property can deduct mortgage interest in full as a business expense and pays corporation tax on the net profit — the same treatment that individual landlords had before Section 24.
Incorporation involves stamp duty, capital gains tax, specialist mortgage requirements, and ongoing compliance costs — the decision to incorporate requires specialist accountancy advice and the maths does not always favour it, particularly for smaller portfolios.
Run the income estimate — see what your property earns with Section 24 already reflected in the net figure
Net figures. Tailored to your postcode. Quiet months included. No obligation.