Interest Relief for Basic Rate Taxpayers

If you are a basic rate taxpayer, Section 24's restriction on mortgage interest relief is close to neutral in cash terms for most landlords, because the 20% tax reduction you get on your finance costs roughly matches the 20% rate you were paying on that income anyway. That does not mean it costs you nothing. The way Section 24 works, by adding your full rental profit back into your income before working out your tax band, can tip a basic rate taxpayer over into higher rate tax on part of their income, even though their actual cash profit has not changed at all.

This guide looks specifically at how Section 24 plays out for a basic rate taxpayer: why it is broadly neutral at the margin, the cliff-edge risk that catches landlords near the higher rate threshold, the knock-on effect on the personal allowance and Child Benefit, and what is worth reviewing if your numbers sit close to any of these lines.

Why it is close to neutral at the margin

Under Section 24, you calculate tax on your rental profit as if mortgage interest had never been deducted, then claim a tax reduction equal to 20% of the interest against your final bill. If your entire rental profit, once added to your other income, sits comfortably within the basic rate band (up to £50,270 for the 2026/27 tax year, after the £12,570 personal allowance), the 20% you pay on the grossed-up profit and the 20% credit you get back on the interest largely cancel out. In this scenario, Section 24 changed the mechanics of the calculation but left the actual amount of tax you pay close to what it would have been under the old rules, where interest was simply deducted before arriving at a taxable profit figure.

This is the reason many basic rate landlords assume Section 24 does not affect them at all. In pure cash terms, on income that stays safely within the basic rate band, that assumption is broadly right. The complication is the word "safely."

The cliff-edge risk

The problem is that Section 24 tests your tax band against the full rental profit, before interest is taken into account, not against your smaller cash profit after interest. This means a landlord who looks and feels like a basic rate taxpayer on a cash basis can, once the full profit is added back, actually have enough income to be pushed over the £50,270 higher rate threshold.

Once even a small slice of your income crosses into the higher rate band, that slice is taxed at 40%, but you still only receive the standard 20% credit on the interest attributable to it. The mismatch that mainly affects higher rate taxpayers therefore starts to bite on exactly the portion of profit that tips you over the line, even if the rest of your income remains comfortably in the basic rate band.

A worked example. A landlord has salary income of £42,000 and a rental property producing rent of £14,000 with mortgage interest of £6,000 and other allowable expenses of £1,000. Rental profit for Section 24 purposes is £13,000 (rent minus expenses, interest excluded). Adding that to salary gives total income of £55,000, which is above the £50,270 higher rate threshold, even though the landlord's actual cash profit from the property, after mortgage interest, is only £7,000. Roughly £4,730 of that £13,000 rental profit now falls in the higher rate band and is taxed at 40% rather than 20%, while the tax credit on the interest remains fixed at 20%. The landlord ends up paying meaningfully more tax than they would have expected based on their salary alone, purely because the grossed-up rental profit, not the cash profit, is what decides the band.

Personal allowance and Child Benefit effects

The same grossing-up effect can trigger two further thresholds that have nothing to do with rental income directly, but are measured against your total adjusted net income, which includes the full rental profit before interest.

• The personal allowance taper. Once adjusted net income exceeds £100,000, the £12,570 personal allowance is reduced by £1 for every £2 of income above that threshold, and is lost entirely once income reaches £125,140. A landlord whose salary and cash rental profit sit below £100,000, but whose grossed-up rental profit pushes adjusted net income above it, can lose part of their personal allowance purely because of how Section 24 is calculated, on top of paying higher rate tax on the excess.
• The High Income Child Benefit Charge. This charge starts to apply once adjusted net income exceeds £60,000, tapering the benefit of Child Benefit away and removing it entirely by £80,000. Because adjusted net income again uses the grossed-up rental profit rather than cash profit after interest, a landlord receiving Child Benefit can find part of it clawed back through this charge even though their actual take-home from the property is well under the threshold.

Both of these are separate mechanisms from Section 24 itself, but they are triggered by the same underlying quirk: HMRC measures your income position against the full rental profit, not the smaller figure left after your mortgage lender has been paid.

What to review if you are near a threshold

If your salary plus rental profit sits within a few thousand pounds of £50,270, £60,000 or £100,000, it is worth modelling the position properly rather than assuming your basic rate status is safe because your cash profit feels modest. A few practical levers are commonly available:

• Pension contributions extend the basic rate band, since a personal pension contribution effectively increases the amount of income taxed at basic rate before higher rate applies, which can pull rental profit back under the threshold in the right circumstances.
• Ownership structure, if the property is jointly owned, can shift some of the profit to a lower-earning spouse or civil partner, covered in our joint ownership and rental tax guide, which can keep both partners' income further from any single threshold.
• Incorporation for new purchases, since a limited company is not affected by Section 24 at all and pays corporation tax on profit after interest, which our limited company buy to let guide covers in full, though moving an existing property into a company is a different and more expensive question.

Our Section 24 explained guide covers the wider mechanics and higher rate examples in more depth, and our tax on rental income guide sets out how the underlying rental profit figure is built before any of these thresholds come into play.

How PropMaps helps

PropMaps tracks your rental profit, before and after interest, alongside your portfolio, so you can see how close your grossed-up income sits to the higher rate, personal allowance and Child Benefit thresholds before your accountant finalises the year, rather than finding out for the first time on your tax bill.

Disclaimer

This guide is general information for UK landlords, not legal, tax or mortgage advice. Check GOV.UK, HMRC or a qualified adviser for your situation.