Section 24 has been one of the most significant tax changes for UK landlords in recent years. Introduced by the UK Government in 2015 and fully implemented by 2020, it fundamentally changed how mortgage interest tax relief works for individual buy-to-let landlords.
If you’re a landlord with a mortgage, understanding Section 24 is essential to protecting your profitability and long-term investment strategy.
What Is Section 24?
Section 24 refers to changes made under the Finance (No. 2) Act 2015. Before this legislation, landlords could deduct 100% of their mortgage interest and finance costs from rental income before calculating taxable profit.
After Section 24 was phased in (2017–2020), landlords can no longer deduct mortgage interest as an expense in the traditional way. Instead, they receive a basic rate (20%) tax credit on their finance costs.
How the Old System Worked
Previously:
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Rental income
-
Minus mortgage interest
-
Minus allowable expenses
= Taxable profit
This meant landlords were taxed only on their real profit after interest costs.
How the New System Works
Now:
-
Rental income
-
Minus allowable expenses (excluding mortgage interest)
= Taxable profit
Then landlords receive a 20% tax credit on mortgage interest.
This change can significantly increase taxable income — especially for higher-rate (40%) and additional-rate (45%) taxpayers.
Why Section 24 Hits Higher-Rate Taxpayers Hardest
Under the old rules, a higher-rate taxpayer received 40% tax relief on mortgage interest. Now, everyone only receives 20% relief, regardless of their income bracket.
Example:
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Rental income: £20,000
-
Mortgage interest: £12,000
-
Other expenses: £3,000
Old system taxable profit:
£20,000 – £12,000 – £3,000 = £5,000
New system taxable profit:
£20,000 – £3,000 = £17,000
Even though the landlord’s real profit is still £5,000, they’re taxed on £17,000 and then receive a 20% tax credit on the £12,000 interest.
This can:
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Push landlords into higher tax brackets
-
Reduce personal allowance eligibility
-
Increase child benefit charge exposure
-
Increase student loan repayments
Who Is Affected by Section 24?
Section 24 applies to:
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Individual landlords
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Buy-to-let property owners
-
Partnerships (where members are individuals)
It does not apply to:
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Limited companies
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Corporate landlords
This is why many landlords are now considering incorporation strategies.
What Can Landlords Do About It?
1. Consider Incorporating
Holding property within a limited company means mortgage interest remains fully deductible as a business expense.
However, incorporation comes with:
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Capital Gains Tax considerations
-
Stamp Duty Land Tax implications
-
Mortgage refinancing issues
-
Administrative responsibilities
Professional advice is critical before making this move.
2. Review Your Portfolio Structure
Some landlords choose to:
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Reduce borrowing
-
Sell underperforming properties
-
Focus on higher-yield investments
-
Diversify into commercial property (which may have different tax treatment)
A careful review of cash flow and tax exposure is essential.
3. Increase Rents (Where Market Allows)
Some landlords offset increased tax costs by adjusting rent. However, this depends on:
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Local market demand
-
Tenant affordability
-
Regulatory considerations
4. Maximise Allowable Expenses
While mortgage interest relief has changed, many expenses are still deductible, including:
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Letting agent fees
-
Repairs and maintenance
-
Insurance
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Professional fees
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Accounting costs
Working with a specialist property accountant in London can help ensure you’re not missing legitimate deductions.
5. Tax Planning and Income Management
Landlords can also:
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Split ownership with a lower-tax spouse
-
Adjust personal income levels
-
Plan dividend extraction if operating via company
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Review pension contributions
Tax planning is now more important than ever.
The Long-Term Impact of Section 24
Section 24 has:
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Reduced profitability for highly leveraged landlords
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Accelerated the shift toward limited company structures
-
Encouraged more professional portfolio management
-
Increased demand for specialist accounting advice
For some landlords, the impact is manageable. For others, it can completely alter the viability of their investment strategy.
Should You Incorporate?
There is no one-size-fits-all answer. Incorporation can be beneficial, but it must be assessed based on:
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Portfolio size
-
Equity levels
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Income tax bracket
-
Long-term plans (sale vs. hold)
-
Mortgage terms
A detailed financial projection comparing personal ownership vs. corporate ownership is essential before making any decision.
Final Thoughts
Section 24 has reshaped the UK buy-to-let landscape. While it has reduced tax efficiency for many individual landlords, careful planning can minimise its impact.
Landlords who proactively review their structure, tax position, and long-term goals are far better positioned to protect profitability and grow sustainably.
If you’re unsure how Section 24 affects your situation, professional guidance can help you create a strategy that aligns with your financial objectives and keeps your property investments on solid ground.
