Rent controls and mortgage interest relief — what contractor-landlords need to understand
Direct Answer
New research from the Joseph Rowntree Foundation proposes that rent controls need not harm landlords if paired with restored mortgage interest tax relief — the relief abolished by Section 24 between 2017 and 2020. For contractor-landlords currently paying higher-rate tax, Section 24 already costs thousands of pounds per year. Whether or not the proposal becomes law, understanding the current rules and planning around them is essential for anyone running a limited company alongside a BTL portfolio.
The JRF proposal: what it would mean
Research by the Joseph Rowntree Foundation and the Autonomy Institute, published in May 2026, argues that rent controls and landlord tax reform are not mutually exclusive — and that combining them could be better for both renters and landlords than the current approach.
The proposed framework has three elements:
- In-tenancy rent cap at CPI: Rent increases during a tenancy would be limited to the rate of inflation. The JRF estimates this would save renters around £1,200 per year within six years compared to the current trajectory.
- Between-tenancy cap at CPI+2%: Landlords could still increase rents when a new tenancy begins, but not without limit.
- Restored mortgage interest relief: Full deductibility of mortgage interest — reversing Section 24 — to offset the income impact of controlled rents on landlords.
The proposal also includes applying National Insurance Contributions to rental profits above a threshold, to capture what the research describes as "inordinate profits" from the sector. For high-profit landlords this is a negative; for most contractor-landlords with one or two properties it may not affect them.
This is research and a policy proposal — it is not current law. But it is a credible framework that has attracted serious policy attention, and it is worth understanding because it clarifies what is actually at stake with Section 24.
Section 24: the relief that was taken away
Before 2017, landlords could deduct mortgage interest from rental income as a business expense — just as any business deducts its financing costs. This meant your taxable rental profit was your rent received minus your mortgage interest (and other allowable costs).
Section 24 replaced this with a flat 20% tax credit on mortgage interest — regardless of your actual tax rate. For basic-rate taxpayers, this made little difference. For higher-rate taxpayers, the effect was significant.
Here is the practical difference for a contractor-landlord at 40% tax:
- Mortgage interest per year: £10,000
- Under old rules: £10,000 deducted from rental income → £4,000 tax saved at 40%
- Under Section 24: 20% credit = £2,000 → tax saved is £2,000
- Annual cost of Section 24 in this example: £2,000
At the higher rate rising to 42% from 2027, that gap widens further. The JRF figures show that 74% of English landlords recorded higher returns than benchmark investments in 2018, falling to 63% in 2024 even after tax — the decline attributable in significant part to Section 24.
The contractor-landlord picture today
If you run a limited company for your contracting work and also own buy-to-let property personally, your tax position looks like this:
Your contracting income — salary from your company, plus dividends — is reported on your personal Self Assessment. Rental profits are added on top. The combination determines which tax band applies to your rental income. For most contractors with meaningful contracting income, rental profits fall entirely in the higher-rate band.
That means Section 24 costs you money every year. There are limited ways around it within the personal ownership structure. The main options are:
- Reduce dividend extraction from your company to keep total personal income below higher-rate thresholds — but this may not be practical if you need the income.
- Company pension contributions to reduce personal taxable income — a legitimate and often underused option.
- Property incorporation — but as covered in our rental tax rise article, this triggers SDLT and CGT on transfer and only pays off over a long hold period.
The most important thing is to ensure your Self Assessment correctly captures all rental income, mortgage interest credits, and allowable costs. See our salary and dividend guide for how to model your overall income position.
MTD ITSA: the additional compliance layer from 2026
From April 2026, landlords with rental income over £50,000 must comply with Making Tax Digital for Income Tax Self Assessment — quarterly digital reporting to HMRC. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028.
For contractor-landlords, this creates a two-track compliance picture: your limited company's existing obligations (corporation tax, VAT, Companies House) plus personal MTD ITSA obligations on rental income. These are handled separately but both need to be managed correctly.
Autobooks handles your personal Self Assessment (SA100) as standard on our Gold plan — covering your salary, dividends, and rental income together. If MTD ITSA applies to you, we will ensure you have compliant software and processes in place. See our MTD ITSA guide for full details of what is required.
What to do right now
Whether or not the JRF rent control proposals become policy, the practical steps for contractor-landlords are the same:
- Confirm your Self Assessment correctly claims the 20% mortgage interest credit — even under Section 24's restricted rules, this must be applied. If your previous returns have not claimed it, there may be grounds to amend them.
- Model your total personal income: Salary + dividends + rental profit. Understand which band your rental income falls into and whether there is any scope to adjust dividend extraction.
- Check your MTD ITSA position: Is your rental income above £50,000? If so, you need to be compliant now. If not, plan for when the threshold drops.
- Consider a broader tax review: If you have not reviewed your overall structure — company, property, personal — in the last year, now is a good time. The combination of the rental tax rise coming in 2027 and the Renters' Rights Act changes makes this a particularly active period for landlord tax planning.
Book a free call and we will walk through your specific situation honestly. We will tell you what changes are worth making and what is not worth the disruption.
If you're a contractor with rental income, your tax position is more complex than most.
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