Restricting finance cost relief for individual landlords, S24 restriction on mortgage interest: how do I claim mortgage interest on my tax return?
Published 17th February 2020; Updated September 2021
Still puzzled by the S24 restriction or finance cost relief? See the easy-to-read full explanation
From 6th April 2020 the tax relief that landlords of residential properties get for finance costs is being restricted to the basic rate of Income Tax. The finance cost relief is now given as a reduction in tax due.
The definition of finance costs includes: mortgage interest and interest on loans to buy a furnishing and suchlike. Relief is also available for the incidental costs of obtaining finance, as long as the interest on the loan is allowable. Incidental costs of loan finance include: items such as arrangement fees, and fees incurred when taking out or repaying loans or mortgages.
How the tax reduction is worked out
The reduction is the basic rate value (currently 20%, correct for 2024-25) of the lower of:
- Finance costs – costs in the tax year plus any finance costs brought forward
- Property business profits – the profits of the property business in the tax year (after using any brought forward losses)
- Adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your Personal Allowance.
The tax reduction cannot be used to create a tax refund.
If the basic rate tax reduction is calculated using the ‘property business profits’ or ‘adjusted total income’ then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years.
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The information contained in this article is believed to be correct at the time of publication. The content of this article is intended to be a brief summary of the principal points of the legislation or proposed legislation only, and it is provided for general guidance only. It may not take into account subsequent changes in the law and of necessity it omits much detail. Taxation is a complicated subject and is subject to change. You should only rely on advice prepared specifically for you. Neither the writer nor Landlords Tax Services Ltd can be held liable for any loss arising from any act or omission by you as a result of your understanding of this article. If the subject matter is of interest you should contact us to see if there is a relevant update, and to take professional advice which takes into account your circumstances.