Quick answer, reviewed 11 October 2026
Individual residential landlords generally receive a basic-rate tax reduction for qualifying finance costs, rather than deducting them from rental profits. The reduction is limited by statutory tests. The furnished holiday lettings tax regime ended in April 2025. Company ownership can have different tax treatment, but transfers, borrowing and taking money out of the company can create substantial costs.
What Section 24 changes
The restriction commonly called Section 24 affects finance costs for individual landlords of residential property. It was phased in from 2017 and fully applied from 2020/21. Qualifying interest is generally excluded from the deduction used to calculate rental profit and considered instead when calculating a basic-rate tax reduction.
It is therefore inaccurate to say that all mortgage interest relief has disappeared. There is relief, but its rate, timing and limits can produce a different result from deducting interest against income. Mortgage capital repayments are not deductible interest. Keep the lender's interest statements separate from total monthly repayments.
The reduction is currently 20% of the lowest of relevant finance costs, property business profits and adjusted total income above the Personal Allowance, under HMRC's definitions. Where a restriction applies, unused finance costs can be carried forward under the rules. See HMRC's calculation and examples.
A higher-rate illustration, with assumptions
Assume an individual has £30,000 rent, no other deductible property expenses and £20,000 qualifying interest. Assume all the rental profit is taxed at 40%, sufficient other income exists, and none of the tax-reduction limits restrict relief. Tax on £30,000 is £12,000; a £4,000 finance-cost reduction gives a property-related liability of £8,000.
The cash surplus before tax is £10,000, leaving £2,000 after that tax in this simplified example. The actual result can differ because of repairs, losses, allowances, other income and the tax bands applying to a taxpayer, including Scottish rates. Finance costs also do not reduce the profit figure used for some income-based calculations. Forecast the complete household position rather than multiplying a mortgage bill by one rate.
Claim genuine property costs correctly
Review eligible letting-agent fees, insurance, repairs and other costs incurred for the property business. Capital improvements have a different treatment from repairs. Replacing a worn item is not always the same as adding a new asset, and relief for domestic items has conditions. Joint ownership, private use and periods before letting can also affect the calculation.
Reconcile rent with bank statements and agent reports, including deductions made before the landlord receives the cash. Maintain a schedule of property expenses and a separate finance-cost carry-forward balance. HMRC's rental-income guidance explains the main categories and reporting requirements.
Furnished holiday letting relief has ended
The special FHL regime was abolished from 6 April 2025 for Income Tax and Capital Gains Tax and from 1 April 2025 for Corporation Tax. It is no longer a route to the former favourable tax treatment merely by changing a residential letting into short stays. Former individual FHL businesses now need to consider the residential finance-cost restriction.
The abolition also affects capital allowances, certain gains reliefs and whether the income is relevant UK earnings for pension purposes. Transitional rules can preserve particular existing balances or reliefs; VAT and local business-rates questions remain separate. A historic FHL balance should not simply be deleted without checking. See the abolition measure and HMRC's transitional clarification.
Incorporation: calculate the entry and exit costs
A company is outside the individual Section 24 restriction, but its interest deductions remain subject to the applicable Corporation Tax rules. Company ownership also brings accounts, tax returns and possible personal tax when profits are distributed. The headline 19% or 25% company rate is not the complete tax cost of receiving rental money personally.
Transferring existing properties to a company can create Capital Gains Tax and Stamp Duty Land Tax in England and Northern Ireland, often using market value for connected transactions. Residential properties are not automatically charged at commercial SDLT rates. Higher residential rates, the separate corporate rules for some purchases and reliefs need assessment. Scotland and Wales have different transaction taxes.
Incorporation relief is conditional, and owning several properties does not automatically satisfy its requirements. Partnership-related SDLT treatment is also fact specific. Add legal fees, refinancing terms, early repayment costs and lender consent to the model. Sources: GOV.UK incorporation relief and corporate SDLT guidance.
For new acquisitions, compare ownership before exchange of contracts. For existing holdings, compare keeping, selling and transferring over a realistic period. A model should show annual after-tax cash, transfer costs and the eventual tax on sale and distribution, with sensitivity to borrowing rates and vacancies.
Pensions and disposal planning
Ordinary rental income is generally not relevant UK earnings for personal pension tax relief. The FHL abolition removes the former special treatment of that income. Other qualifying earnings may support personal contributions, and company contributions require their own business-purpose and annual-allowance review. Do not assume that any landlord can offset rent by paying it into a pension.
On a taxable UK residential property disposal, an individual may need to report and pay Capital Gains Tax within 60 days of completion. The general rates are 18% and 24%, with the actual calculation depending on available bands and reliefs. See GOV.UK reporting rules before using all sale proceeds elsewhere.
A future change from 6 April 2027
Separate property Income Tax rates of 22%, 42% and 47% are legislated for 2027/28 in England, Wales and Northern Ireland, with residential finance-cost relief calculated at the property basic rate of 22%. These are future rules, not the rates for 2026/27. Scottish treatment requires a separate check. Sources: HMRC's technical note and Finance Act 2026.
MTD and the 2026/27 records
Eligible landlords with qualifying income over £50,000 on their 2024/25 return entered MTD for Income Tax from April 2026. Combine qualifying property income with self-employment income when assessing scope. Joint owners use their own qualifying share. See our current MTD guide.
For a useful portfolio review, bring ownership details, loan balances, interest schedules, rents, expenses, purchase costs and intended sale dates. That is a stronger basis for decisions in Harrow or elsewhere than unsupported average yields or assumptions about future property returns.
Frequently asked questions
Has Section 24 removed all mortgage interest relief?
No. Individual residential landlords generally receive a basic-rate tax reduction for qualifying finance costs, subject to limits, instead of deducting those costs from rental profit.
Can a furnished holiday let still avoid Section 24?
The special furnished holiday lettings tax regime ended from 6 April 2025 for individuals. Former individual FHL businesses must consider the residential finance-cost restriction and relevant transitional rules.
Is transferring rental properties into a company automatically tax-free?
No. A transfer can create Capital Gains Tax, property transaction tax, refinancing and legal costs. Any relief depends on the facts and should be assessed before a transfer.
Reviewed against the linked primary sources on 11 October 2026. This guide gives general information; the tax treatment depends on your circumstances and the relevant tax or accounting period.
For support with your records and calculations, see our tax planning service or contact Angel Accountancy to discuss your requirements.