Section 24 Buy-to-Let Tax Calculator

What Is Section 24 and Why It Matters

Section 24 of the Finance (No. 2) Act 2015 — usually just called "Section 24" or the finance cost restriction — is one of the most consequential tax changes ever made to the UK buy-to-let market. Phased in between 6 April 2017 and 5 April 2020, and fully in force since the 2020/21 tax year, it changed how individual residential landlords get tax relief on their mortgage interest.

Before Section 24, a landlord treated mortgage interest like any other business cost: you deducted it from your rent before working out taxable profit. A higher-rate landlord effectively got 40% relief on every pound of interest. Today, you can no longer deduct that interest at all. Instead you pay income tax on a higher profit figure and then receive a basic rate tax reducer worth 20% of your finance costs. For anyone paying tax above the basic rate, that swap from "40% deduction" to "20% credit" is a direct, recurring tax increase.

This calculator implements HMRC's exact method, including the "lowest of three figures" rule that determines how much of your 20% reducer you can actually use, and it shows the gap between the modern rules and the pre-2017 full-deduction approach so you can see Section 24's real cost in pounds.

How the Calculator Works

The tool follows the same four-step logic HMRC uses on a Self Assessment return for residential property:

1. Taxable rental profit = rental income − other allowable expenses. Crucially, mortgage interest is not subtracted here. This is the heart of Section 24.
2. Income tax on profit is found by stacking your rental profit on top of your other income (salary, pension, self-employment) and taxing the rental slice at your marginal rate using the 2025/26 bands. The calculator works out the tax with and without the rental profit, and the difference is the income tax attributable to your property.
3. The Section 24 tax reducer is 20% of the lowest of three figures: (a) your finance costs (mortgage interest), (b) your property profits, and (c) your "adjusted total income" — broadly your income above the Personal Allowance. This lowest-of-three test, set out in HMRC's guidance, stops the relief from exceeding the tax actually due.
4. Net tax = income tax on the rental profit − the Section 24 reducer (never below zero).

To illustrate the impact, the calculator also computes the old method — where interest is deducted in full before tax — and shows the difference. That difference is the annual cost of Section 24 to you specifically.

The 2025/26 Figures Used

The calculator uses the income tax rates and thresholds that apply in England, Wales and Northern Ireland for the 2025/26 tax year, confirmed on GOV.UK:

• Personal Allowance: £12,570 (tax-free)
• Basic rate (20%): £12,571 to £50,270
• Higher rate (40%): £50,271 to £125,140
• Additional rate (45%): over £125,140
• Personal Allowance taper: reduced by £1 for every £2 of income over £100,000, reaching zero at £125,140 — creating an effective 60% marginal rate in that band
• Section 24 tax reducer: 20% (the basic rate) of the lowest of finance costs, property profits, or adjusted total income

These are the standard UK rates. Scottish taxpayers pay income tax on non-savings income at separate Scottish rates and bands, so a Scottish landlord's result will differ even though the Section 24 mechanism is UK-wide.

Worked Example: A Higher-Rate Landlord

Consider a landlord with a £45,000 salary and a buy-to-let producing £18,000 of rent a year. They pay £7,000 of mortgage interest and have £2,500 of other allowable expenses (letting agent fees, insurance, repairs).

Step 1 — Taxable rental profit: £18,000 − £2,500 = £15,500. Mortgage interest is excluded.

Step 2 — Income tax on the rental profit: The £45,000 salary uses up the Personal Allowance and part of the basic rate band, leaving £5,270 of basic rate room (£50,270 − £45,000). So £5,270 of the £15,500 profit is taxed at 20% (£1,054) and the remaining £10,230 at 40% (£4,092). Income tax on the rental profit is £5,146.

Step 3 — Section 24 reducer: 20% of the lowest of finance costs (£7,000), property profits (£15,500), or adjusted total income over the allowance (here well over £40,000). The lowest is the £7,000 of interest, so the reducer is 20% × £7,000 = £1,400.

Step 4 — Net tax: £5,146 − £1,400 = £3,746.

The old rules for comparison: interest would have been deducted first, giving a profit of £18,000 − £2,500 − £7,000 = £8,500. Stacking that £8,500 on the £45,000 salary, the first £5,270 falls in the basic rate (20% = £1,054) and £3,230 in the higher rate (40% = £1,292), so the old-rules tax on the rental income is £2,346. Section 24 therefore costs this landlord £1,400 more per year (£3,746 − £2,346) — which is exactly 20% of the £7,000 interest, the classic higher-rate Section 24 hit. The cost is larger still for landlords with bigger mortgages or those tipped over a band threshold. Enter your own numbers above to see your exact figures.

The Band-Creep Trap for "Basic Rate" Landlords

A landlord who stays comfortably within the basic rate band is broadly unaffected by Section 24: a 20% reducer matches the 20% relief they would have had by deduction. The real danger is band creep. Because mortgage interest no longer reduces your taxable income, the full rental profit is added to your other income when deciding your tax band. That larger income figure can:

• push you over the £50,270 higher-rate threshold, so part of your income is taxed at 40% while relief stays at 20%;
• push you over £100,000, where the Personal Allowance tapers away at an effective 60% rate;
• affect entitlements that depend on "adjusted net income", such as the High Income Child Benefit Charge or the £100,000 cliff edge for tax-free childcare.

This is why a landlord who feels like a basic-rate taxpayer can still be stung. The calculator surfaces your combined income and resulting band so you can see whether the rental profit has tipped you over a threshold.

What Counts as a Finance Cost

The restriction applies to more than just the headline mortgage interest. According to HMRC, finance costs caught by Section 24 include interest on mortgages and loans used to buy or improve the residential property, interest on loans to buy furnishings, and incidental costs of obtaining that finance (such as some arrangement and broker fees). It does not apply to the capital repayment element of a repayment mortgage — only the interest. Loans relating to commercial property or furnished holiday lettings are outside the restriction, and limited companies are excluded entirely.

Strategies Landlords Use to Manage Section 24

There is no way for an individual landlord to opt out of Section 24, but several legitimate planning routes exist. None are one-size-fits-all and all carry trade-offs, so professional advice is essential before acting:

• Incorporation — holding property in a limited company, which can still deduct interest in full and pays Corporation Tax. Watch out for Stamp Duty Land Tax, possible Capital Gains Tax on transfer, mortgage availability, and the tax on extracting profits.
• Spousal income shifting — transferring all or part of the beneficial interest to a lower-earning spouse or civil partner so more of the profit is taxed at the basic rate. A Form 17 election and a declaration of trust are usually needed.
• Reducing borrowing — overpaying or repaying the mortgage to cut the finance cost that is now only partially relieved.
• Pension contributions — personal pension contributions extend your basic rate band, which can pull rental profit back out of the higher-rate band.
• Furnished holiday lettings — historically outside Section 24, although the FHL regime was abolished from 6 April 2025, so this route no longer offers the same advantages.

Carry-Forward of Unused Finance Costs

In a year where your property profits or your adjusted total income — rather than your interest — is the lowest of the three figures, you cannot relieve all of your finance costs. The good news is that the relief is not lost: the unused finance costs are carried forward and added to the next year's finance costs. This commonly happens in a loss-making year or a year with very low profit, where there is little or no tax for the reducer to offset.

Cash Flow Is Not the Same as Tax

Finally, remember that your tax bill and your cash position are different numbers. Section 24 taxes you on profit that ignores your interest, so a heavily geared landlord can face a tax bill even while making little or no actual cash profit once the full mortgage payment is taken into account. Modelling both your Section 24 tax (this page) and your underlying cash flow is essential for sound landlord planning. Our rental income tax calculator shows the full profit-and-cash-flow picture, and the rental yield calculator helps you assess returns before you buy.

Frequently Asked Questions