Section 24: How Much Tax Do You Pay on UK Rental Income? (2026 Guide)

Section 24 of the Finance Act 2015 is one of the most consequential tax changes to affect UK buy-to-let in a generation. Since April 2020, when the phased transition completed, individual landlords have been unable to deduct mortgage interest from their rental income before calculating their tax bill. What replaced it — a 20% tax credit on finance costs — sounds similar but works very differently in practice, particularly for higher-rate taxpayers.

For overseas buyers considering a London buy-to-let, or those who already own UK rental property, understanding precisely what Section 24 does to the actual figures is essential before making any investment or structuring decision. IREIS Properties works with international buyers across every stage of the acquisition process, and tax structuring is one of the first conversations we have.

What Section 24 Actually Changed — And What It Didn’t

Before April 2017, a UK individual landlord could deduct mortgage interest and other finance costs from gross rental income as a business expense — exactly as a limited company still can today. If rent was £18,000 and mortgage interest was £8,000, the taxable profit was £10,000 and income tax applied to that figure at the landlord’s marginal rate.

Section 24 removed this deduction for individuals entirely. Finance costs are now added back into the profit calculation, producing a higher taxable figure. At the end of the process, you receive a credit equal to 20% of your finance costs — not a deduction, a credit. For a basic-rate taxpayer (20% marginal rate), the arithmetic works out similarly to the old system. For a higher-rate (40%) or additional-rate (45%) taxpayer, the credit covers only half or less of the additional tax generated by treating mortgage interest as profit rather than an expense.

Critically, Section 24 did not change any other allowable expenses. Letting agent and management fees, maintenance and repairs, buildings insurance, ground rent, accountancy costs, advertising, and utilities you pay as landlord all remain fully deductible against rental profit. The restriction targets mortgage and loan financing costs specifically.

HMRC guidance on the calculation with worked case studies is the authoritative technical reference for landlords completing Self Assessment.

The Six-Step Calculation (2025/26 Tax Year)

For 2025/26, the calculation for an individual landlord follows this sequence:

Step 1 — Gross rental income. Total rent received or entitled to receive in the tax year, including advance rent and any premium payments received on grant of a lease.

Step 2 — Deduct allowable expenses. Management fees, insurance, maintenance and repairs (not improvements), ground rent, accountancy fees, advertising costs, and utilities you pay. Do not include mortgage interest or other finance costs at this step.

Step 3 — Taxable rental profit. Gross rent minus all allowable expenses from Step 2. This is the figure that enters the income tax calculation.

Step 4 — Apply income tax to your total income. Add rental profit to all other UK income for the year. The 2025/26 income tax bands are: 0% on the personal allowance (£12,570); 20% from £12,571 to £50,270; 40% from £50,271 to £125,140; 45% above £125,140. Non-UK residents generally retain access to the UK personal allowance for UK-source income — confirm your eligibility with a qualified adviser as your personal circumstances may differ.

Step 5 — Section 24 finance cost credit. Multiply your total mortgage interest and qualifying finance costs by 20%. This figure is the credit you will deduct from your income tax bill.

Step 6 — Tax owed = Step 4 total income tax minus Step 5 credit.

The critical insight in this sequence is that taxable rental profit (Step 3) is computed before mortgage interest, which means the tax base is higher than most landlords expect when they first model their position. The real impact of Section 24 becomes visible only when you run Steps 4 through 6 at your actual marginal rate.

Three Worked Examples

The following examples use a single property with identical rent, expenses, and mortgage to isolate the effect of different marginal tax rates. Figures are for illustration using 2025/26 income tax rates; actual liability depends on your full income position, personal allowance allocation, and any other reliefs available.

Property assumptions: Annual rent £18,000 — Allowable expenses (management, insurance, repairs — no mortgage interest) £3,000 — Taxable rental profit £15,000 — Mortgage interest £8,000 — Section 24 credit = 20% of £8,000 = £1,600

Example A — Basic-rate taxpayer (marginal rate 20%)

Income tax at 20% on £15,000 rental profit = £3,000. Subtract Section 24 credit of £1,600. Tax on rental income: £1,400.

Under the pre-2017 rules, this landlord would have declared a profit of £7,000 (after deducting mortgage interest) and paid £1,400 in tax at 20% — the same amount. Section 24 is broadly neutral at the basic rate: the 20% credit exactly offsets the extra tax generated by the larger profit base.

Example B — Higher-rate taxpayer (marginal rate 40%)

Income tax at 40% on £15,000 = £6,000. Subtract credit of £1,600. Tax on rental income: £4,400.

Under the old system, a £7,000 profit at 40% would have produced a £2,800 tax bill. Section 24 costs this landlord an additional £1,600 per year on these figures — roughly equivalent to one month’s gross rent, silently removed from the net return each year.

Example C — Additional-rate taxpayer (marginal rate 45%)

Income tax at 45% on £15,000 = £6,750. Subtract credit of £1,600. Tax on rental income: £5,150.

Old-system liability on £7,000 at 45%: £3,150. Section 24 adds £2,000 per year in additional tax on the same property with the same mortgage. The higher the leverage and the higher the income band, the wider this gap becomes.

These are the numbers that have led many higher-rate landlords to examine whether a limited company structure is more tax-efficient for new acquisitions. IREIS Properties covers the full trade-off — including the mortgage rate premium on company borrowing, dividend tax on income extraction, and the cost of incorporating an existing property — in our Ltd company buy-to-let guide.

The Non-Resident Landlord Scheme: The Overseas Layer

Overseas property owners face an additional compliance requirement before Section 24 even comes into play. Under the Non-Resident Landlord Scheme (NRLS), UK-based letting agents are legally required to withhold income tax at 20% from rent collected on behalf of non-UK-resident landlords and remit it directly to HMRC — unless the landlord holds written HMRC approval to receive rent gross.

To avoid the automatic 20% deduction, submit form NRL1 to HMRC before your first rental collection and wait for written approval. Once approved, your agent pays the full rent and you declare the income and settle the correct liability through UK Self Assessment. Where there is no UK letting agent and the tenant pays you directly, the tenant is required to withhold 20% from rent exceeding £100 per week unless you hold NRL1 approval.

NRL1 registration does not reduce your tax — it changes who collects it and when. A higher-rate taxpayer whose actual marginal liability is 40% will typically owe more than the 20% withheld at source; registering and filing Self Assessment accurately ensures you declare the correct marginal-rate figure rather than accumulating an underpayment across multiple years. The interaction between the NRLS obligations, UK Self Assessment deadlines, and your home country’s double-taxation treaty with the UK is worth reviewing with a UK-qualified international tax adviser before your first rental income is received.

What Changes From April 2027

Currently, property income is taxed at the same bands as employment, trading, and pension income. From 6 April 2027, HMRC will introduce dedicated income tax rates for property income: 22% at the property basic rate, 42% at the property higher rate, and 47% at the property additional rate — an increase of 2 percentage points across every band. These rates apply specifically to property income; employment and pension income continues at the existing bands. Rates are subject to government policy and may change; consult a qualified UK tax adviser for the current position before acting.

On the numbers in Example B above, a higher-rate landlord would see their annual rental tax bill rise from £4,400 to approximately £4,700 from April 2027, holding all other variables constant. Buyers and portfolio holders who are planning acquisitions or refinancing decisions in 2026 should factor both the current and forthcoming rates into their forward cash-flow projections.

Two further changes take effect alongside the 2027 rate increase. First, the ordering of reliefs changes: the personal allowance and other reliefs must be set against employment, trading, or pension income before property income — which can affect the effective rate for investors with mixed income sources. Second, Making Tax Digital for Income Tax becomes mandatory from April 2026 for landlords with qualifying gross income above £50,000, falling to £30,000 from 2027 and £20,000 from 2028, replacing annual Self Assessment with quarterly digital submissions via HMRC-compatible software. Overseas landlords should confirm with their UK accountant whether the MTD regime changes their reporting obligations.

Planning Ahead with IREIS Properties

Tax on UK rental income is not a single fixed figure. It is the outcome of Section 24’s finance cost restriction applied at your marginal income tax rate, the NRLS withholding layer that applies to every non-UK-resident landlord, and from April 2027, a new set of property-specific rates that add 2 percentage points at every band. Running an accurate after-tax cash-flow model before you acquire is considerably more straightforward than restructuring after completion.

Use our rental yield and return calculator to project gross returns on a specific property, then work through the six-step calculation above with a UK-qualified tax adviser to arrive at the net after-tax position at your actual income band. For a comprehensive view of what you will pay across stamp duty, legal fees, service charges, and all ongoing ownership costs, the UK property costs and taxes overview covers each element in detail. Deeper landlord and tax topics — from Renters’ Rights Act compliance to non-resident CGT reporting — are gathered in our tax and legal guides hub.

If you are also considering a future sale, note that non-UK residents face UK Capital Gains Tax on residential property disposals and a strict 60-day reporting window; the rules and current rates (confirmed for the 2025/26 tax year and subject to change) are covered in our non-resident CGT and 60-day reporting guide.

Contact the IREIS Properties team to discuss how a specific property fits your after-tax targets — or to review whether your current ownership structure remains the most efficient one ahead of the 2027 changes.