Section 24 and the £100,000 income-tax cliff for landlords (UK 2026)
For an individual buy-to-let landlord, mortgage interest no longer reduces the rental profit shown on the tax return. That headline change — the "Section 24" restriction, fully phased in from 6 April 2020 — is well covered. The second-order effect is less so: the same computational rule inflates the figure HMRC uses to test the £100,000 personal-allowance taper and the £60,000 high-income child benefit charge threshold. Two boundary effects can bite even when a landlord's economic income has not changed.
This piece walks through the mechanic with two worked examples at the current Bank of England 75% LTV five-year fixed rate of 4.32% (the BoE's published file for 1 April 2026). It is a factual explainer of how the rules interact, not advice. A qualified adviser should confirm how any of this applies to a specific landlord's circumstances.
The s.272A mechanic in 30 seconds
The restriction sits in section 272A of ITTOIA 2005, inserted by section 24 of the Finance (No. 2) Act 2015 and fully effective from 6 April 2020. It applies to individual landlords of residential property (not companies, not commercial property, and — since the Finance Act 2024 abolition effective 6 April 2025 — no longer to furnished holiday lets either).
Two changes are bolted together:
- Finance costs are no longer a deductible expense in computing rental business profit. "Finance costs" includes mortgage interest, the interest element of alternative finance, fees on a loan secured against the property, and incidental costs of obtaining the loan. HMRC's Property Income Manual PIM2054 sets out the scope.
- A separate "tax reducer" is allowed — a credit equal to 20% (the basic rate) of the lower of: (a) the disallowed finance costs, (b) the rental business profits, and (c) "adjusted total income" less personal allowance. PIM2058 sets out the cap.
In the simple case where (a) is the binding cap, a higher-rate landlord whose interest bill used to attract 40% relief now gets 20% — the headline "Section 24" hit. The less-discussed mechanic is what removing the deduction does to the number on which other thresholds are tested.
What "adjusted net income" actually counts
Both the personal-allowance taper and the high-income child benefit charge use adjusted net income (ANI), a defined statutory concept anchored on income from all sources before personal allowance, with a short list of deductions and add-backs.
Crucially, rental business profit enters ANI after the s.272A restriction has been applied — i.e. without the interest deduction. The interest that used to net down the property profit no longer does. ANI is therefore mechanically higher under the s.272A regime than it would have been on the same economic facts pre-2017, even though the tax-reducer credit is given separately and does not feed back into ANI.
This matters because ANI is the test number for:
- The personal-allowance taper. Section 35 of the Income Tax Act 2007 withdraws £1 of personal allowance for every £2 of ANI above £100,000. At £125,140 the allowance is fully withdrawn. On the slice between £100,000 and £125,140, every extra £1 of income costs roughly 60p in tax (40% on the £1 + a 40% tax bill on the 50p of allowance newly lost).
- The high-income child benefit charge. From 6 April 2024, HMRC starts to claw back Child Benefit when ANI exceeds £60,000, with a full clawback by £80,000 — see GOV.UK guidance on the High Income Child Benefit Charge.
A landlord who would have sat below either threshold under the pre-2017 deductible-interest regime can find themselves in the taper zone purely because of how the profit is now computed.
Worked example 1: the £100,000 taper
Consider a hypothetical higher-rate landlord:
- PAYE salary: £60,000
- Gross rents: £75,000
- Allowable non-finance expenses: £20,000
- Mortgage interest paid: £20,000 (consistent with around £463,000 of BTL debt at the BoE's latest published 75LTV5Y rate of 4.32%)
Property profit before any restriction is £55,000 (£75,000 − £20,000). Under the rules in force before 6 April 2017, the £20,000 interest bill would have been deductible, giving a rental profit of £35,000. Under s.272A, that interest is not deducted; rental profit is £55,000 on the return.
The income-tax bill compares as follows, applying 2026/27 thresholds (Personal Allowance £12,570, basic-rate band £37,700, higher-rate band to £125,140):
| Component | Pre-2017 treatment | Post-2020 s.272A treatment |
|---|---|---|
| Property profit | £35,000 | £55,000 |
| Total income (PAYE + property) | £95,000 | £115,000 |
| Personal Allowance | £12,570 | £5,070 |
| Taxable income | £82,430 | £109,930 |
| Basic-rate tax (20% × £37,700) | £7,540 | £7,540 |
| Higher-rate tax (40%) | £17,892 | £28,892 |
| Income tax before reducer | £25,432 | £36,432 |
| 20% finance-cost tax reducer | n/a | −£4,000 |
| Income tax payable | £25,432 | £32,432 |
The post-2020 bill is £7,000 higher on identical economic facts. About £4,000 of that gap is the headline "basic-rate credit only" effect on the £20,000 interest. The remaining £3,000 is the personal-allowance taper biting on the £15,000 slice of ANI that has been pushed above £100,000 (£15,000 × 40% on the extra income + £7,500 × 40% on the personal allowance withdrawn = roughly £3,000 of taper-driven tax).
A landlord running the comparison on a property purchase scenario on the mortgage tool can change the loan and deposit and watch the interest cost move — but the boundary mechanic above is independent of the specific lender or product.
Worked example 2: HICBC threshold crossing
A lower-income, two-child household shows the same boundary mechanic on a smaller scale:
- PAYE salary: £40,000
- Gross rents: £55,000
- Allowable non-finance expenses: £15,000
- Mortgage interest: £20,000
- Two children claimed for Child Benefit (around £2,250 per year in total at HMRC's current rates)
Property profit before interest is £40,000. Under pre-2017 rules, interest of £20,000 would have netted that to £20,000, giving total income of £60,000 — right at the post-April-2024 HICBC starting point, with no clawback. Under s.272A, the rental profit on the return is £40,000, and ANI is £80,000 — at which point the High Income Child Benefit Charge claws back the full £2,250.
| Component | Pre-2017 treatment | Post-2020 s.272A treatment |
|---|---|---|
| Property profit | £20,000 | £40,000 |
| Adjusted net income | £60,000 | £80,000 |
| Income tax (after 20% reducer where applicable) | £11,432 | £15,432 |
| High Income Child Benefit Charge | £0 | £2,251 |
| Total tax + HICBC | £11,432 | £17,683 |
A £6,250 swing on identical economic facts — about £4,000 of that the standard basic-rate-credit-only Section 24 hit, the rest the HICBC clawback that only triggers because s.272A inflates ANI to £80,000.
When the rule doesn't bite
Three structural carve-outs eliminate the boundary effect:
- Limited companies. Companies relieve finance costs under the loan-relationships regime (CTA 2009 Parts 5–6), with full deductibility against trading or property income. The boundary mechanic does not apply because corporation tax is charged on the company, not the landlord's adjusted net income. The trade-off is the wider limited-company landlord tax stack — corporation tax on profits, dividend tax on extraction, and the ATED rules at £500k+ dwellings.
- Commercial property. Section 272A is restricted to "dwelling-related loans" — interest on a loan secured against a commercial unit remains fully deductible against rental profit in the ordinary way.
- Pension contributions. Adjusted net income is computed after deducting the grossed-up amount of personal pension contributions. A landlord whose ANI sits at, say, £108,000 under s.272A might bring themselves back below the taper boundary with a sufficient pension contribution — though the practical mechanics, contribution allowance and annual-allowance taper need verifying case by case.
The Finance Act 2024 abolition of the furnished holiday lettings regime closed the previous fourth carve-out: former FHL income has been inside s.272A since 6 April 2025, so any FHL-derived adjusted net income now feeds into the taper calculation in the same way as long-let residential income.
What this is not
This piece describes how two long-standing UK tax rules interact arithmetically. It does not say which ownership structure is "better" — that depends on the landlord's other income, household composition, exit horizon, leverage, ATED exposure, and personal preferences. It does not say whether to incorporate an existing portfolio (which can trigger CGT and SDLT on the transfer). It does not say whether to overpay, refinance, or extend the term — three separate questions covered in the Section 24 BTL ERC-relief piece and the 10% overpayment-cap ERC-buyback piece.
For a worked example tied to a specific area, the Leeds true-cost tool lets a reader test their own purchase scenario at the current BoE-quoted rate. More cost-intelligence explainers are catalogued under the Cost Intelligence category.
Based on the latest Bank of England quoted-rate file (April 2026 release) plus HMRC's published Property Income Manual and the legislation as enacted at the time of writing. This is general information about how the rules work, not advice. Speak to a qualified tax adviser or accountant before acting on any of it.