Section 24 changed the arithmetic of leveraged property investment by restricting tax relief on residential finance costs to a basic-rate credit. One consequence that gets less attention is that the restriction is tied to the kind of property the loan relates to, not to the loan itself. Finance on commercial and mixed-use property is treated differently, which is why landlords restructuring their debt now have to think about what sits behind each facility, not just the headline rate. This piece builds on the companion guides on the 20% basic-rate credit and the April 2027 rate changes on geared portfolios.
What Section 24 actually restricts
Section 24 of the Finance (No. 2) Act 2015 phased out the deduction of finance costs from residential property profits for individual landlords. Since 2020/21, residential landlords cannot deduct mortgage interest and other finance costs from their rental income. Instead they receive a tax reducer worth 20% of those costs, the basic rate. For a higher-rate taxpayer this is the central problem: the rent is taxed at 40% but the interest only relieves at 20%, so a heavily geared portfolio can show a taxable profit even where the real cash position is close to break-even.
The key point for debt restructuring is the scope of the restriction. It applies to costs of a "dwelling-related loan", meaning borrowing relating to residential let property. It does not apply to all property borrowing a landlord might hold.
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Why commercial and mixed-use loans are treated differently
Finance costs on commercial property let by an individual are not caught by Section 24. Interest on a loan to buy or improve a commercial unit, an office, a shop or a warehouse, remains fully deductible against the commercial rental profit in the normal way. The same is true of the commercial element of a genuinely mixed-use property. This is a structural difference, not a loophole: Section 24 was written to target residential buy-to-let gearing specifically, and commercial lending was left outside it.
For a landlord with both residential and commercial holdings, this means the tax efficiency of borrowing is not uniform across the portfolio. A pound of interest on the commercial side relieves in full; a pound of interest on the residential side relieves at 20%. That difference is what makes the composition of the debt, and not just its cost, a live planning question.
How finance-cost relief differs by property type
| Property behind the loan | Section 24 restriction | Relief on finance costs |
|---|---|---|
| Residential buy-to-let (individual) | Applies | 20% basic-rate tax credit only |
| Commercial property (individual) | Does not apply | Full deduction against rental profit |
| Mixed-use, commercial element | Does not apply to that part | Full deduction on the commercial share |
| Property held in a company | Does not apply | Full deduction against company profit |
What "restructuring" can and cannot do
It is tempting to read all of this as an invitation to move residential borrowing onto commercial facilities, but the relief follows the property the loan genuinely relates to, not the label on the product. Securing a loan against a commercial unit to fund a residential purchase does not convert residential finance costs into commercial ones; HMRC looks at what the borrowing was for. Genuine restructuring works at the level of which properties carry which debt, and that is constrained by what each property can support and what lenders will agree.
There are still real levers. Allocating new borrowing to the commercial side of a mixed portfolio where the funds are genuinely used there, keeping commercial and residential facilities distinct so the relief position is clean, and reviewing whether highly geared residential holdings are the right ones to retain, are all legitimate responses. What does not work is relabelling residential debt as commercial to escape a restriction Parliament designed to catch it.
Where the company route fits
Section 24 does not apply to property held in a limited company, because a company deducts its finance costs against profit in the normal way and pays corporation tax on the net figure. This is why incorporation is so often discussed alongside Section 24. It is not a free win: extracting profit from a company carries its own tax, and moving existing property into a company triggers capital gains and stamp duty considerations. The company question is a separate decision with its own trade-offs, and it should be weighed in the round rather than treated as an automatic answer to the finance-cost restriction.
A note on holiday lets
The furnished holiday lettings regime, which previously allowed full finance-cost relief and other advantages, was abolished from 6 April 2025. Properties that were treated as holiday lets are now taxed under the ordinary property rules, which means their residential finance costs fall within the Section 24 restriction like any other residential let. Landlords who relied on the old holiday-let treatment for finance relief need to factor that change into any restructuring.
Common questions about Section 24 and debt
Can I switch my buy-to-let to a commercial mortgage to escape Section 24?
No. The restriction follows the residential property the borrowing relates to, not the type of mortgage product. Putting a residential let on a commercial facility does not make its finance costs fully deductible if the loan still relates to a dwelling.
Is interest on a loan for a shop or office fully deductible?
Yes. Finance costs on genuinely commercial property let by an individual are not caught by Section 24 and remain deductible against the commercial rental profit in full. The same applies to the commercial part of a mixed-use property.
Does Section 24 apply to a company?
No. A company deducts its finance costs against profit and pays corporation tax on the net. That is why incorporation is part of the Section 24 conversation, though it brings its own capital gains, stamp duty and profit-extraction costs that have to be weighed.
How is my relief actually given if I cannot deduct the interest?
As a tax reducer worth 20% of your residential finance costs, applied after your tax is calculated. It cannot create a refund beyond your liability, and unused amounts can be carried forward, which is why very highly geared residential portfolios can lose part of the benefit in a given year.
The right debt structure depends on the mix of residential and commercial property in your portfolio and your wider tax position. A landlord accountant can model the relief on each facility, show where the composition of the debt is costing you, and set out whether restructuring or incorporation earns its keep in your case.