Section 24 is probably the single most consequential tax change to hit private landlords in a generation. It did not make the headlines it deserved when it was introduced, and many landlords still do not fully understand how it works or what it costs them each year. The short version: you can no longer deduct your mortgage interest from rental income before calculating your tax. Instead you get a 20% tax credit. For basic-rate taxpayers the difference is modest. For higher-rate taxpayers it is significant — and the knock-on effects go further than most people realise.
What Section 24 actually changed
Before the change, individual landlords could deduct finance costs — primarily mortgage interest — directly from their rental income when calculating the profit liable to income tax. This was a straightforward business expense deduction, the same principle that applies to most other costs in a letting business.
Section 24 of the Finance (No.2) Act 2015 removed that deduction and replaced it with a basic-rate tax credit of 20% on the finance costs. It was phased in gradually from 2017/18 and was fully in force from the 2020/21 tax year.
The credit mechanism sounds similar to a deduction but it is not. A deduction reduces the income on which you are taxed. A credit reduces the tax you owe after the income has been assessed. The difference matters enormously when you pay tax at more than 20%.
The numbers: why higher-rate taxpayers pay more
Take a straightforward example. A landlord has rental income of £20,000 and mortgage interest of £10,000. Before Section 24:
- Taxable rental profit: £10,000
- Tax at 40%: £4,000
After Section 24:
- Taxable rental income: £20,000 (interest is no longer deducted)
- Tax at 40%: £8,000
- Less 20% tax credit on £10,000 interest: £2,000
- Net tax: £6,000
The same landlord, the same property, the same mortgage. An additional £2,000 in tax each year. On a portfolio of five or ten properties, this adds up to a material annual cost — one that many landlords are not explicitly tracking.
The less obvious effects
The mechanics above are the headline cost. But Section 24 has two less-discussed side effects that bite in specific situations.
First, because you are now taxed on gross rental income rather than net profit, your total income for Self Assessment purposes is higher. That can push a basic-rate landlord into the higher-rate tax band, trigger repayment of Child Benefit if income exceeds the threshold, or reduce the personal allowance for landlords with income above £100,000 (the allowance tapers at £1 for every £2 above £100,000 until it disappears at £125,140).
Second, the credit cannot create a tax refund — it can only reduce your tax bill to nil. If your allowable expenses produce a paper loss in a year, the credit does not carry the excess forward in the same way as a loss relief; it is simply lost.
Does Section 24 apply to limited companies?
No. Section 24 applies only to individual landlords — those holding property personally or through a partnership without corporate members. Limited companies can still deduct mortgage interest in full as a business expense before arriving at the profit subject to Corporation Tax.
This is the reason so many landlords and advisers have pointed to incorporation as the answer to Section 24. For some, it is. For others, the transaction costs of getting there — SDLT on the transfer, potential CGT on the disposal, the administrative overhead of running a company — outweigh the ongoing tax saving. The calculation is specific to each portfolio: the number and value of properties, the level of mortgage debt, the mortgage rates available to companies versus individuals, and how the landlord intends to extract profit from the company all affect the answer.
We wrote about this in more detail in our article on buying property through a limited company. The summary is that incorporation is sometimes clearly the right move and sometimes clearly the wrong one, and the honest answer requires actual numbers rather than a generic recommendation.
Reviewing your position
If you have not revisited your tax position since Section 24 came fully into force, the right starting point is a calculation of what you are actually paying versus what you would have paid under the old rules. For portfolios carrying significant mortgage debt, the gap is often larger than expected.
From there the options include: reviewing the portfolio to assess whether certain properties are worth retaining, considering whether incorporation makes commercial sense, timing disposals to make use of capital losses, and structuring rental income between spouses where the tax bands differ. None of these are one-size answers, but most landlords we work with have at least one lever worth pulling that they have not yet used.
Our property investor accounting service is built around the kind of portfolio that Section 24 affects most — individual landlords with meaningful mortgage debt, spread across the North West from Liverpool to Manchester and across Cheshire and Lancashire.
Common questions
What is Section 24 of the Finance Act 2015?
Section 24 removed the right of individual landlords to deduct mortgage interest and other finance costs from their rental income before calculating income tax. It replaced that deduction with a 20% basic-rate tax credit on the finance costs. The change was fully in force from the 2020/21 tax year and applies to UK residential lettings held by individuals, not companies.
Does Section 24 apply to properties held in a limited company?
No. Section 24 applies only to individual landlords. Companies can still deduct mortgage interest in full as a business expense. However, incorporating an existing portfolio is not straightforward: SDLT and CGT may both be triggered on the transfer, and whether the move pays depends heavily on portfolio size, mortgage levels and extraction strategy.
Who does the mortgage interest restriction affect most?
Higher and additional-rate taxpayers are hit hardest. A basic-rate taxpayer receives a 20% credit that broadly matches the tax rate, so the net impact is smaller. A higher-rate taxpayer used to deduct interest at 40% and now receives a 20% credit. Beyond the rate difference, the restriction increases gross taxable income, which can push landlords into higher tax bands, affect Child Benefit, and erode the personal allowance.
Can I get specialist buy-to-let tax advice in Liverpool or Manchester?
Yes — property investor tax structuring is one of the core areas we cover. We work with landlords and investors across Liverpool, Merseyside, Greater Manchester, Cheshire and Lancashire to review portfolio structure, Section 24 exposure, and whether incorporation makes commercial sense for their specific position.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.