Section 24 Landlord Tax Explained

If you own a buy-to-let property in your own name, Section 24 is one of the most important tax rules to understand. It changed how much of your mortgage interest you can offset against your rental income, and it has quietly made property investment more expensive for many higher-rate taxpayers.

Section 24 means individual landlords can no longer deduct their mortgage interest as a business expense. Instead, you receive a flat 20% tax credit on your finance costs, regardless of the tax rate you pay. For a basic-rate taxpayer that broadly matches the old relief, but for higher and additional-rate landlords it can significantly increase the tax due.

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Key Takeaways

• Section 24 replaced full mortgage-interest deduction with a 20% tax credit for individual landlords.
• Higher-rate (40%) and additional-rate (45%) taxpayers are hit hardest, because they previously relieved interest at their marginal rate.
• Limited companies are not subject to Section 24 and can still deduct finance costs in full.
• Because relief is now a credit, your taxable rental profit can look higher than your real cash profit, which can even push you into a higher tax band.

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What Is Section 24?

Section 24 of the Finance (No. 2) Act 2015 is the rule that restricts "finance cost" relief for residential landlords. Finance costs include buy-to-let mortgage interest, interest on loans to buy furnishings, and some arrangement fees.

Before the rules, a landlord could deduct all of their mortgage interest from rental income before calculating tax. Since the phased changes completed in the 2020/21 tax year, you instead add all your rental income, deduct allowable running costs (but not the mortgage interest), and pay income tax on that figure. You then get a tax credit worth 20% of your mortgage interest knocked off the bill.

Who Does Section 24 Affect?

Section 24 applies to individuals who let residential property and have a mortgage or loan against it. It affects:

• Sole owners and joint owners letting in their personal names.
• Partnerships letting residential property.
• Landlords with holiday-let or commercial property only in limited situations — the rules mainly target standard residential lets.

It does not apply to properties held inside a limited company. That is one of the main reasons incorporation has become so popular, which we cover in our guide to limited company buy to lets.

Why Higher-Rate Taxpayers Are Hit Hardest

The impact depends entirely on your tax rate. The basic rate is 20% on income between £12,571 and £50,270, with the higher rate of 40% applying from £50,271 to £125,140 and the additional rate of 45% above that.

Because the credit is fixed at 20%:

• A basic-rate landlord relieves interest at 20% and gets a 20% credit — broadly no change.
• A higher-rate landlord used to relieve interest at 40% but now only gets 20% back — effectively doubling the tax cost of their mortgage interest.
• An additional-rate landlord loses even more.

There is a second, sharper problem. Because your full rental income now counts before the interest is stripped out, your taxable income can look larger than it really is. That can tip a basic-rate taxpayer into the higher-rate band, or trigger other thresholds. Understanding whether the numbers still stack up is exactly the kind of question we tackle in is buy to let worth it?

Because affordability and repayments drive so much of the maths, it helps to model your monthly cost first:

Personal Name vs Limited Company

The headline difference is simple: limited companies can still deduct mortgage interest in full as a business cost, so Section 24 does not apply to them. Company profits are taxed under corporation tax rather than income tax, and finance costs reduce those profits directly.

That does not automatically make a company the right answer. Incorporating has its own costs — additional accountancy, potentially higher mortgage rates, and tax on drawing money back out as dividends. Moving an existing personally-owned property into a company is also treated as a sale, which can trigger Stamp Duty (including the 5% additional-property surcharge) and Capital Gains Tax. For most people this is a decision to take with both an accountant and a broker.

If you are only just starting out, it is also worth understanding how lenders treat first-time landlords in our guide, can I get a buy to let as a first-time buyer?

Managing the Impact of Section 24

There is no way for an individual landlord to opt out of Section 24, but there are ways to soften it:

• Review your gearing. The rule bites on mortgage interest, so a lower loan-to-value means less interest and a smaller problem.
• Consider ownership split. For married couples, holding a larger share in the name of the lower earner can help, though this needs care and advice.
• Keep good records. Genuine running costs — letting fees, repairs, insurance — are still fully deductible, so don't lose relief you're entitled to.

Does Section 24 apply to holiday lets?

Historically, qualifying furnished holiday lets were treated more generously, but that special regime has been withdrawn, so most landlords should now assume standard rules apply and check the current position on GOV.UK.

Can I avoid Section 24 by using a company?

A company is outside Section 24, but transferring an existing property in is a taxable event and comes with extra running costs. It suits some investors and not others — take advice before acting.

Is Section 24 the same across the UK?

The income tax bands quoted here apply to England, Wales and Northern Ireland. Scottish taxpayers have different income tax bands, which changes the exact impact.

Section 24 rarely stops property investment being worthwhile, but it does change the sums — especially for higher earners. Model your numbers carefully and take tax advice before deciding how to hold a rental property.