How the rules used to work
Before the reforms, landlords could deduct 100% of their mortgage interest from rental income before calculating tax. If you earned £10,000 in rent and paid £8,000 in interest, you were taxed only on the remaining £2,000.
How Section 24 changed the system
Since the introduction of Section 24 of the Finance Act 2015, landlords no longer deduct mortgage interest from rental income. Instead, they pay tax on their full gross rental income and then receive a 20% tax credit for their mortgage interest at the end of the calculation.
The problem: many landlords aren’t claiming it
Despite the change being several years old, a surprising number of landlords fail to claim the credit at all, effectively handing HMRC more money than required. This often stems from confusion about the new rules or simply forgetting that the relief still exists in a different form.
Why this matters
Missing the credit can significantly inflate a landlord’s tax bill, especially for those with large mortgages or multiple properties. Ensuring the relief is claimed correctly is now a key part of keeping rental finances efficient and compliant.
Landlords now need to navigate a very different system for mortgage interest relief, and the 2026 rules mean it’s easy to miss out unless you understand how the calculation works.
How mortgage interest relief operates in 2026
You are taxed on your full rental income, minus any other allowable expenses such as repairs, maintenance, insurance, or letting agent fees. Mortgage interest is not deducted at this stage.
Instead, you receive a 20% tax credit based on the amount of mortgage interest you’ve paid. This credit is applied at the end of the calculation to reduce your final tax bill.
Carrying forward unused relief
If your property made a rental loss in the previous year, you may be able to carry forward unused finance cost relief and set it against future rental profits. This can make a meaningful difference for landlords with fluctuating income or periods of high repair costs.
Why some landlords are using companies instead
Section 24 applies only to individual landlords, not companies. As a result, many investors now choose to buy property through a limited company, where the rules are different:
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Companies can still deduct 100% of mortgage interest as a business expense.
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Tax is then paid on the remaining profit via Corporation Tax, rather than on gross rental income.
This structure can be more efficient for higher-rate taxpayers or those planning to grow a portfolio, though it comes with its own costs and administrative requirements.
Moving an existing property into a company usually triggers both Stamp Duty Land Tax and Capital Gains Tax, which is why incorporation tends to make sense for new acquisitions, not as a quick fix for properties you already own.
As 2026 progresses, the tax landscape for landlords is shifting. From April 2026, Making Tax Digital for Income Tax Self-Assessment will apply to anyone with £50,000 or more in combined turnover from property and sole-trade activity. Those affected will need to keep digital records and submit quarterly updates to HMRC using approved software.
Looking ahead, the Government also intends to introduce separate, higher tax bands for property income from April 2027, with potential rates of 22%, 42% and 47%. As these rates rise, the value of your 20% finance cost credit becomes even more important.
Moving an existing property into a company usually triggers both Stamp Duty Land Tax and Capital Gains Tax, which is why incorporation tends to make sense for new acquisitions, not as a quick fix for properties you already own.
As 2026 progresses, the tax landscape for landlords is shifting. From April 2026, Making Tax Digital for Income Tax Self-Assessment will apply to anyone with £50,000 or more in combined turnover from property and sole-trade activity. Those affected will need to keep digital records and submit quarterly updates to HMRC using approved software.
Looking ahead, the Government also intends to introduce separate, higher tax bands for property income from April 2027, with potential rates of 22%, 42% and 47%. As these rates rise, the value of your 20% finance cost credit becomes even more important.