By the Unity Stays directors, Marcus Chong & Gadir Al-Khatib · Last updated 12 August 2026
In short: Section 24 stopped individual landlords deducting mortgage interest from rental income as an ordinary expense; finance costs instead attract a basic-rate tax reduction, so tax is calculated on income before interest comes out. Phased in from 2017, it hits higher-rate taxpayers hardest, and since the furnished holiday lettings regime ended in April 2025 short lets fall within it too.
What it actually did
Before Section 24, a landlord could deduct mortgage interest from rental income as an ordinary business expense and pay tax on the profit that remained.
Section 24 removed that. Finance costs are no longer deductible from property income; instead they attract a basic-rate tax reduction. Tax is therefore calculated on rental income before finance costs, and only then reduced.
The change was phased in from 2017 and has been fully in force for several years.
Why it hits higher-rate taxpayers hardest
Because taxable income is now calculated before the interest comes out, the headline income figure is larger. That can push a landlord into a higher tax band, restrict allowances, and in some cases produce a tax bill on a property that is barely profitable.
A basic-rate taxpayer is broadly neutral, since the relief and the rate match. A higher or additional-rate taxpayer gets relief at 20% on a cost they are effectively taxed on at 40% or 45%.
It also interacts with anything that tapers on total income, which is why the effect is sometimes larger than the interest figure alone suggests.
The short-let angle — and what changed in 2025
Furnished holiday lettings were outside Section 24. FHL properties could still deduct finance costs in full, and that was one of the genuine tax advantages of short letting over a standard tenancy.
The FHL regime was abolished from April 2025. Short-let properties now fall within the same restriction. Mortgage interest relief is limited to the basic rate, capital allowances on furniture are no longer available in the same way, certain capital gains reliefs no longer apply, and short-let profits no longer count as relevant earnings for pension purposes.
If you are reading older guidance describing short letting as a way around Section 24, that guidance is out of date. Our tax changes guide sets out what moved.
What it means for a short-let decision now
The case for short letting now rests on what the property actually earns and what it costs to run, rather than on a tax advantage. That is a cleaner basis for a decision, if a less flattering one.
It also raises the value of getting the running costs right, because there is no longer a tax break absorbing an optimistic model. The income calculator models the deductions rather than leaving them out.
Ownership structure is where most of the remaining variation sits, and it is genuinely a question for an accountant rather than a website. Companies are taxed differently, but incorporating an existing portfolio has its own costs and is not automatically better.
A plain summary of a tax rule, not tax advice. Your position depends on your income, your structure and your other holdings. Speak to an accountant before acting on it.