Section 24 tax explained for landlords

What is Section 24?

Section 24 of the Finance (No. 2) Act 2015 — often called the “tenant tax” or the mortgage-interest relief restriction — removed the right of individual landlords to deduct finance costs from their rental income before tax. Phased in between 2017 and 2020 and now fully in force, it applies to mortgage interest, the interest element of buy-to-let loans, and associated finance fees on residential lettings.

Before Section 24, a landlord simply took rent, subtracted mortgage interest and other costs, and paid tax on the profit that was left. Now an individual is taxed on the full rental income (after non-finance expenses like maintenance and letting fees), and the mortgage interest is handed back only as a basic-rate 20% tax credit — not a deduction.

Deduction versus tax credit — why it matters

The difference between a deduction and a credit is the whole story. A deduction comes off your income before tax is worked out, so it is worth your marginal rate — 40% or 45% for higher and additional-rate taxpayers. A credit is applied after tax is calculated and is fixed at 20%. For a basic-rate landlord the two roughly cancel out. For a higher-rate landlord, the 20% credit no longer covers the tax due on the interest, so the effective tax bill rises.

Two further stings come with it. Because your full rent now counts as taxable income, Section 24 can push a landlord into a higher tax band, and it can drag total income over thresholds that trigger the High Income Child Benefit Charge or taper the personal allowance — effects that have nothing to do with how much you actually cleared on the property.

A simplified example

Take a higher-rate landlord with £20,000 of annual rent and £12,000 of mortgage interest, and ignore other costs for clarity. Under the old rules they would have paid 40% on the £8,000 of real profit — about £3,200. Under Section 24 they pay 40% on the full £20,000 (£8,000), then deduct a 20% credit on the £12,000 interest (£2,400), leaving roughly £5,600. Same property, same rent, same mortgage — but the tax bill is far higher purely because of how the interest is treated.

Why limited companies are not affected

Section 24 applies to individuals, not companies. A property held inside a limited company — typically a special purpose vehicle, or SPV — is taxed under corporation tax rules, where mortgage interest remains a fully deductible business expense. The company pays corporation tax only on its profit after interest, exactly as the old personal rules worked. That single difference is the main reason a wave of landlords now buy new property through a company and weigh moving existing portfolios into one.

Is incorporating the answer?

For some landlords, yes — but it is rarely a simple switch. Buying new property through a company sidesteps Section 24 from day one. Moving an existing personal portfolio into a company is a sale to the company at market value, which can trigger capital gains tax and stamp duty unless a relief applies, so the numbers have to be worked through carefully. We cover that decision in detail in our guide to property incorporation, and the tax mechanics in capital gains tax on property and stamp duty for limited companies.

Where the finance comes in

Whether you buy personally or through an SPV, the structure shapes the lending — and that is our half of the job. Limited-company buy-to-let is a specialist product, priced and underwritten differently to a personal mortgage, and not every lender offers it. As a whole-of-market broker we arrange buy-to-let mortgages for both individuals and SPVs, so once you and your accountant have settled the structure, we shop the market for the lender that fits it best.