What is Section 24 in plain English?

Section 24 is the law that stopped UK individual landlords from deducting mortgage interest as a normal rental expense. Before April 2017 you could subtract mortgage interest from your rental income before calculating tax; now you cannot. Instead, you get a 20% basic-rate tax credit on those costs, which is worth less to higher-rate taxpayers and can cause weird outcomes like break-even portfolios producing tax bills.

Who does Section 24 apply to?

Individual UK-resident landlords letting residential property. It does not apply to limited companies, to commercial property, or to furnished holiday lets (which had their own regime change in April 2025 but a different one). Trusts and partnerships are affected at the individual partner level.

How is the 20% tax credit calculated?

The credit is 20% of the lowest of three figures: your finance costs, your rental profit (before deducting finance costs), and your income above the personal allowance. The 'lowest of three' rule means the credit is capped where it would otherwise wipe out non-property tax, but in most landlord situations the lowest figure is simply the finance cost itself.

Does Section 24 affect basic-rate taxpayers?

For a pure basic-rate taxpayer, the cash effect is usually neutral: the 20% credit roughly equals what the deduction would have produced. The main practical impact for basic-rate landlords is that the higher 'profit' figure on their tax return can push them across thresholds (basic to higher rate, the £100k taper, the Child Benefit charge), even though their actual cash income has not changed.

Are companies exempt from Section 24?

Yes. Mortgage interest is fully deductible in a UK limited company, the same as any other business expense. This is one of the main reasons portfolio landlords have moved to a company structure since 2017. The trade-off is corporation tax on profits and the cost of getting cash out of the company through dividends or salary; we model both routes for clients each year.

Can I avoid Section 24 by transferring my property to a company?

You can hold new properties in a company easily; the difficulty is transferring existing personally-owned properties into a company. The transfer is treated as a sale at market value, which can trigger Capital Gains Tax for you and Stamp Duty Land Tax for the company. Specific reliefs (notably incorporation relief) can mitigate this for landlords running a property business at sufficient scale, but the threshold is strict and incorrect application is one of HMRC's frequent enquiry triggers. Take advice before you transfer anything.

Section 24 explained: how the mortgage interest restriction works and what UK landlords can do about it

What Section 24 actually does

Section 24 of the Finance (No. 2) Act 2015 is the legislation that stopped UK individual landlords from treating mortgage interest as a normal rental business expense. Before April 2017, you could deduct mortgage interest from rental income to arrive at taxable profit. Now you cannot.

Instead, you get a 20% basic-rate tax credit on your finance costs. The credit is calculated separately and applied to your overall tax bill after the rental profit has been added to your other income.

For a basic-rate taxpayer, the cash effect is broadly neutral. For higher-rate and additional-rate taxpayers, it is significant, your effective tax rate on the mortgage interest jumps from 0% (it used to net off) to 20% to 25% depending on band.

Worked example: how a break-even portfolio now produces tax

Take a higher-rate landlord with one property:

Gross rent: £18,000
Mortgage interest: £12,000
Other expenses (insurance, repairs, management fees): £3,000
True cash profit: £3,000

Pre-Section 24 (before April 2017)

The old calculation:

Rental profit = £18,000 − £12,000 − £3,000 = £3,000
Tax at 40%: £1,200
Cash left after tax: £1,800

Post-Section 24 (from April 2020)

Taxable rental profit = £18,000 − £3,000 = £15,000 (mortgage interest excluded)
Tax at 40%: £6,000
Section 24 credit: 20% × £12,000 = £2,400
Net tax: £6,000 − £2,400 = £3,600
Cash left after tax: £3,000 − £3,600 = −£600

The landlord with £3,000 of actual cash profit now pays £3,600 in tax. They are £600 worse off than before they bought the property, despite the property generating positive cash flow on paper.

This is the structural problem that has driven so many landlords to either incorporate, sell, or restructure since 2017.

The threshold effects nobody warns you about

Beyond the direct tax impact, Section 24 inflates the 'profit' on your tax return. Even though your cash income is unchanged, the higher figure can push you across thresholds:

Basic rate to higher rate. A landlord earning £45,000 of salary plus £8,000 of pre-Section 24 rental profit on a portfolio with £20,000 of mortgage interest now shows £53,000 of salary + £28,000 of property 'profit' for tax purposes. They cross into the 40% bracket.
£100,000 personal allowance taper. If you were sitting at £95,000 of total income before Section 24, you can find yourself at £115,000 after, with the personal allowance tapering away and an effective marginal rate around 60%. See our 40% tax bracket guide for the £100k mechanics.
High Income Child Benefit Charge (HICBC). This kicks in at £60,000 of adjusted net income (raised from £50,000 in 2024/25). Inflated rental 'profit' can push you above £60,000 and start clawing back Child Benefit.
Student loan repayments. Income-based, so the inflated profit figure can drive higher loan deductions.

These secondary effects are often larger than the headline Section 24 tax difference itself. A landlord who 'only' moves into the 40% bracket but also loses Child Benefit and starts repaying their student loan can see a far worse outcome than the simple mortgage-interest calculation suggests.

Who is affected (and who is not)

Section 24 applies to:

UK-resident individuals letting residential property
Partners in a partnership that lets residential property
Trustees of certain non-discretionary trusts

It does not apply to:

UK limited companies, mortgage interest is fully deductible against rental profit at corporation tax rates
Commercial property, retains full deduction
Furnished holiday lets previously did not apply, although the FHL regime itself was abolished in April 2025, so most former FHLs are now standard residential lets and are caught

The company exemption is the single most important planning consideration. Many portfolio landlords have moved (or are considering moving) their properties into a limited company structure specifically to recover full mortgage interest relief.

Four legitimate ways to manage the impact

1. Hold new properties in a limited company

A limited company structure deducts mortgage interest in full at the corporation tax line. So a 'break-even' portfolio in personal hands becomes a tax-paying-on-cash-profits portfolio in a company. The trade-offs:

Corporation tax on profits (19% to 25%)
Personal tax (dividends or salary) to get cash out
Higher SDLT rates on company purchases (additional dwellings surcharge from £0)
Annual accounts, corporation tax returns, Companies House filings
BTL mortgage rates are typically 0.25 to 0.50 percentage points higher in a company

For new purchases, the company route generally beats the personal route once you are a higher-rate taxpayer and the portfolio is large enough to justify the extra admin (usually 3+ properties or £500,000+ of value).

2. Transfer existing properties to a company (with caution)

Moving an existing personally-owned portfolio into a company is technically a sale. It triggers:

Capital Gains Tax on the latent gain in each property
SDLT on the company side (at additional dwellings rates)
Mortgage redemption and reissue costs

Incorporation relief can defer the CGT element, but only where you can demonstrate the portfolio is a 'business' rather than passive investment. The case law (Ramsay v HMRC, and others) sets a high bar: typically you need 20+ hours a week of genuine portfolio management. We model this carefully before any transfer to confirm it works.

3. Pension contributions to claw back the band-shift effect

Personal pension contributions extend the basic rate band by the gross contribution and reduce adjusted net income for the £100,000 taper. A £15,000 personal pension contribution pulls a landlord at £115,000 of taxable income back down to £96,250 of adjusted net income, restoring most of the personal allowance and unwinding the worst of Section 24's secondary effects.

4. Shift ownership between spouses

If you are married or in a civil partnership and your spouse has spare basic-rate band, a Declaration of Trust can shift rental income (and the related finance costs) toward whichever spouse is in the lower tax band. The Form 17 election with HMRC formalises this for tax purposes. Particularly useful where one spouse is a non-earner or a basic-rate taxpayer.

How to model your own Section 24 position

A quick desk calculation:

Add up your annual rental income
Subtract allowable expenses (everything except mortgage interest)
Add the result to your other taxable income
Calculate income tax on the total
Subtract 20% of your mortgage interest as a credit
Compare to your actual cash position to see whether you are still cash-positive after tax

If the answer is negative or barely positive, it is worth modelling a company structure for new acquisitions and checking the threshold effects on your personal position. Our salary + dividend calculator and our property tax modelling can do this side-by-side.

Section 24 affecting your portfolio?

We specialise in UK landlord tax. A 20-minute call with RR Accountants is enough to model your Section 24 position, compare personal vs limited company outcomes, and identify the legitimate planning moves available for your portfolio. Fixed-fee, no sales pitch, just the numbers.

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