Section 24 and the 2027 property income tax rise: what landlords actually pay

Two pieces of tax law explain most of the pressure on individually owned buy-to-let portfolios: the finance cost restriction usually called Section 24, in force since 2020, and the property income tax rise announced in the Autumn Budget 2025 for April 2027. This guide explains both with worked numbers.

Section 24 in one paragraph

Since April 2020 an individual landlord cannot deduct mortgage interest or other finance costs from rental income when working out taxable profit. Instead the landlord receives a tax reduction equal to 20% of the finance costs. Rental profit is therefore calculated before interest, which inflates taxable income, and the 20% credit is then taken off the tax bill. The credit cannot exceed the tax due on the property profits, and any unused credit carries forward.

Why it hurts more than it looks

Consider a landlord with a salary of £40,000 and a rental property producing £15,000 of rent, £3,000 of running costs and £9,000 of mortgage interest.

• Real profit: £15,000 minus £3,000 minus £9,000 = £3,000.
• Taxable profit under Section 24: £15,000 minus £3,000 = £12,000.
• Total taxable income: £40,000 plus £12,000 = £52,000, which crosses the higher-rate threshold of £50,270.
• Tax on the property profit: £1,730 at 40% (£692) plus £10,270 at 20% (£2,054) comes to £2,746, less the 20% credit on £9,000 of interest (£1,800), leaving £946.

The landlord pays £946 of tax on £3,000 of real profit, an effective rate of almost 32%, and the rental income has pushed them into higher-rate territory too. As interest rates rose after 2022 many portfolios found the tax bill exceeding the cash profit. Companies are unaffected because they deduct interest in full.

The April 2027 change

The Autumn Budget 2025 introduced separate income tax rates for property income from 6 April 2027:

Band	Standard income	Property income from April 2027
Basic	20%	22%
Higher	40%	42%
Additional	45%	47%

The rates apply to profits from UK and overseas property held by individuals, partnerships and trusts. The Section 24 credit stays at 20%, so the gap between the tax rate on the inflated profit and the relief on the interest widens slightly. The personal allowance and thresholds remain frozen, which means fiscal drag pulls more landlords into the higher band every year.

Using the example above, the same landlord's property tax bill rises from £946 to £1,186, around £240 a year, from April 2027 before any rent increase. On a larger portfolio the increase scales with profit.

What landlords are doing about it

• Reviewing the structure. Limited company ownership restores full interest deductibility and replaces income tax with corporation tax, but it brings stamp duty and capital gains tax on transfer, higher mortgage rates and dividend tax on extraction. It suits some portfolios and not others, and the sums need doing properly.
• Reducing leverage where the interest is the problem rather than the tax.
• Increasing income through HMO or serviced accommodation strategies, which raise profit per property and make the fixed tax cost easier to carry.
• Using both spouses' allowances by adjusting beneficial ownership, subject to the usual care around form 17 and mortgage lender consent.
• Pension contributions and gift aid, which extend the basic-rate band and can pull property profit back below the threshold.

What it is not

Section 24 does not apply to furnished holiday lettings before April 2025 (that regime has since gone), to commercial property, or to companies. It does not stop you claiming genuine running costs: repairs, insurance, agent fees, licensing, safety certificates and finance arrangement fees remain deductible in the normal way.

This guide is general information rather than tax advice. Every landlord's numbers are different, and the right structure depends on income, gains held in the properties, borrowing and plans for the next ten years. AIRPROP models these scenarios for clients; your accountant should sign off on the final decision.