Section 24 Explained: Why Your "Good Yield" Might Be a Loss in 2026
Mortgage interest stopped being a deduction for individual UK landlords in 2020. Here's the maths behind why a 6% gross yield can become a £2,000 after-tax loss — and the 60%+ effective tax band in the £100k–£125,140 personal-allowance taper zone.
Before 2017, UK landlords deducted mortgage interest like any business cost. After Section 24 finished phasing in in April 2020, individual landlords no longer deduct interest at all — instead, they get a flat 20% tax credit ("the reducer") against their tax bill. For higher-rate taxpayers, this turns a profitable-looking property into a loss-maker on paper and, often, in cash too.
The mechanic, step by step
- Compute taxable property profit = rent − allowable expenses (interest is NOT deducted).
- Add to other income. Compute income tax normally, with the personal-allowance taper above £100k.
- Subtract a reducer of 20% × min(interest paid, property profit, adjusted income above PA).
- The cash you actually saw is rent − expenses − actual interest. The two numbers can diverge by a lot.
Worked example: 6% gross yield → -£600 after-tax cash
Higher-rate landlord, £60,000 employment income. Property purchased for £250,000, financed £187,500 (75% LTV) at 5.5% interest-only. Monthly rent £1,400 (£16,800 gross; 6.7% gross yield).
| Effective rent (after 5% vacancy) | £15,960 |
| Operating costs | £3,000 |
| Mortgage interest | £10,313 |
| Cash profit | £2,647 |
| Taxable profit (no interest deducted) | £12,960 |
| Income tax @ 40% on £12,960 | £5,184 |
| Less 20% reducer on £10,313 interest | −£2,063 |
| Net rental tax | £3,121 |
| After-tax cash | −£474 |
The 6.7% gross yield, presented in most calculators as "healthy", actually produces a negative real cash flow. That's Section 24.
The 60%+ effective rate band
Between £100,000 and £125,140 of total income, the personal allowance tapers away (£1 lost for every £2 of income). The effective marginal rate in this band can exceed 60% once Section 24 stacks on top. If your other income is here, even a modest rental profit pushes you into the trap.
Try it on your numbers
Use the Section 24 Multi-Year Calculator to model your actual rent, costs and interest across 10+ years — the wedge widens as rents and rates rise.
