How does Section 24 mortgage interest work in Making Tax Digital?

Under Making Tax Digital, mortgage interest goes in its own record and is sent separately in each quarterly update. It is not deducted as an expense: it earns a tax reduction of 20% for 2026-27, then 22% from 2027-28.

Section 24 is the common name for the rule that stops individual landlords deducting mortgage interest from residential rent. Making Tax Digital for Income Tax (MTD) does not change the rule. It changes how you record and report the interest during the year. The figures below come from GOV.UK pages checked on 16 October 2026.

How the reduction is worked out

Your rental profit is worked out without the interest. Then HMRC takes the basic rate of the lowest of three amounts:

If the profit or income figure is the lowest, the rest of the interest carries forward to later years. The reduction cannot create a tax refund.

A worked example for 2027-28

A landlord in England collects £18,000 in rent, pays £4,000 in other costs and £6,000 in mortgage interest. Rental profit is £14,000, because the interest is left out. From 2027-28 property income in England and Northern Ireland is taxed at 22%, 42% or 47%, and the reduction is given at 22%. Under Finance Act 2026, from 2027-28 the Senedd sets a Welsh property rate and the Scottish Parliament can set its own property rates.

For a basic-rate taxpayer the result is the same as deducting the interest. For a higher-rate taxpayer it costs £1,200 more, which is why Section 24 matters most once rent pushes you into the higher band.

What MTD changes

GOV.UK's digital record-keeping direction says that anyone with property income who has residential finance costs, such as mortgage interest, must keep a separate digital record of them and send them separately in quarterly updates. This applies even if your property turnover is under £90,000 and you choose to send only total income and total expenses. The interest is still a separate line.

On the paper tax return the same split exists: residential finance costs go in box 44 of the UK property pages, and unused costs carried forward in box 45. Your MTD software builds this from the separate record.

What this means for you

If you have a buy-to-let mortgage and join MTD on 6 April 2027, set up mortgage interest as its own category before your first update, due 7 August 2027. Use your lender's statements to split interest from capital, because only the interest counts.

If you pay higher-rate tax, the gap between the 42% charge and the 22% reduction from 2027-28 is worth planning for when you set money aside for 31 January.

Steps to set up mortgage interest for MTD

1. Check whether and when MTD applies to you with the free MTD check.
2. Get an annual interest statement from each lender, or split each monthly payment into interest and capital.
3. Create a separate finance costs category in your records, kept apart from repairs, agent fees and other costs.
4. Record the interest each month or quarter, so each update carries the figure to date.
5. Keep a note of any unused interest brought forward from earlier years for your tax return.
6. Check the tax estimate in your software after each update, so the 31 January bill is not a surprise.

Companies and partnerships

These rules are for individual landlords. GOV.UK says companies paying Corporation Tax can claim interest on property loans as an expense, and individual landlords who pay Income Tax cannot. Partnerships do not yet need to use MTD. More landlord guides are in the landlord section.