Mortgage interest and Section 24: how landlords in Bromley and Chislehurst are really taxed

If you let out a flat in Bromley, a house in Chislehurst or a couple of properties around Orpington, you've probably heard that landlords "can't claim mortgage interest any more". That isn't quite right. You still get tax relief, but it works very differently from the way it did a decade ago, and the difference matters most if you pay higher rate tax or have a large mortgage. Here's a plain-English guide to how the rules work and what you can do about them.

What Section 24 changed

Before April 2017, individual landlords could deduct all of their mortgage interest from rental income before working out the tax. Section 24 of the Finance Act 2015 phased that out over four years. Since 6 April 2020, residential landlords who own property in their own name can't deduct mortgage interest or other finance costs as an expense at all.

Instead, you get a tax credit worth 20% of your finance costs. That credit reduces your tax bill after it has been calculated on your rental profit before interest.

The rule covers mortgage interest, interest on loans to buy furniture for the let, and fees for arranging or redeeming a mortgage. It applies to residential lets held personally or in a partnership. It does not apply to limited companies, which still deduct interest as a normal business cost or to commercial property. Furnished holiday lets lost their special treatment from April 2025, so they now follow the same finance cost rules as other residential lets.

Why it hits higher rate taxpayers hardest

For a basic rate taxpayer, a 20% credit gives roughly the same result as deducting the interest. For a higher rate taxpayer, it doesn't. Take a simple example using round numbers:

• Rent received: £18,000 a year
• Letting agent, repairs and insurance: £3,000
• Mortgage interest: £9,000

Your taxable rental profit is £15,000, because the interest isn't deducted. If all of that falls in the 40% band, the tax is £6,000. You then get a credit of 20% of £9,000, which is £1,800, so the bill is £4,200. Under the old rules, tax would have been charged on £6,000 of profit, giving £2,400. That's an extra £1,800 a year for the same property.

There's a second, less obvious effect. Because your rental profit is higher on paper, your total income is higher too. That can push you into the higher rate band, reduce your Personal Allowance once income goes above £100,000, or trigger the High Income Child Benefit Charge, even though your cash in hand hasn't changed.

Property income rates from April 2027

From 6 April 2027, property income will be taxed at its own rates, confirmed after Budget 2026: 24% basic, 44% higher and 49% additional (for England, Wales and Northern Ireland). The Section 24 finance cost credit rises with the property basic rate, from 20% to 24%. The credit is still only a tax reduction, not a deduction from rental profit, so higher rate landlords continue to feel the biggest impact. We'll keep our clients updated as the Finance Bill is finalised.

What you can still claim

Section 24 only restricts finance costs. You can still deduct the normal running costs of letting, including:

• letting agent and management fees
• repairs and maintenance (but not improvements)
• landlord insurance, ground rent and service charges
• gas safety checks, EPCs and electrical testing
• replacing furniture, appliances and furnishings like for like
• accountancy fees for preparing your rental accounts

Any finance cost credit you can't use in a year, for example because your rental profit is low, can be carried forward to later years. It isn't lost, so make sure it's recorded properly on your return.

Options worth looking at

There's no single answer, and some options carry costs of their own. The common ones are:

• Splitting ownership with a spouse or civil partner. If your partner pays tax at a lower rate, holding the property jointly, or in unequal shares with a Form 17 declaration, can reduce the overall bill. Transfers between spouses are usually free of Capital Gains Tax, but mortgage lenders and legal fees need checking.
• Using a limited company for future purchases. Companies deduct interest in full and pay Corporation Tax instead of income tax. But getting money out as dividends is taxed again, mortgage rates are often higher, and moving existing properties into a company can trigger Capital Gains Tax and Stamp Duty Land Tax. It suits some portfolios and not others.
• Paying into a pension. Personal pension contributions extend your basic rate band, which can bring more of your rental profit back into the 20% band.
• Reviewing your borrowing. Overpaying or refinancing won't suit everyone, but it's worth comparing the after-tax cost of your mortgage with other uses of spare cash.

Each of these needs proper numbers before you act. Incorporating in particular is a big decision that's hard to reverse.

Don't forget Making Tax Digital

Landlords and sole traders with combined qualifying income over £50,000 have been in Making Tax Digital for Income Tax since April 2026, with the threshold falling to £30,000 from April 2027. If you're affected, your rental income and expenses need to be kept digitally and sent to HMRC quarterly. Cloud software such as Xero makes it much easier to see your finance costs and the credit building up through the year.

How Muftals can help

We're a chartered firm (ACCA and CIMA) based on Bromley Lane in Chislehurst, working with landlords across Bromley, Orpington, Swanley and the wider BR area. We can work out what Section 24 is really costing you, compare joint ownership, company and pension options with your actual figures, and look after your Self Assessment and Making Tax Digital submissions.

Book a free first call on 020 7078 7546 or send us a message. We're open Monday to Friday, 9am to 5:30pm.

This article is general guidance based on the rules at the time of writing and isn't personal advice. Tax rates and reliefs can change, so speak to us before acting.