Section 24 is the single biggest tax change to affect private landlords in the last decade. Since it was fully phased in from April 2020, landlords who rely on mortgage finance to fund their portfolios have seen their tax bills rise sharply, and in some cases have found themselves paying tax on properties that are generating little or no actual profit.
If you are a landlord with a mortgage and you have not properly reviewed the impact on your tax position, this guide is essential reading.
Quick Answer
Section 24 removed the right of residential landlords to deduct mortgage interest as an expense when calculating rental profit. Instead, landlords now receive a flat 20% tax credit on their finance costs. For basic rate taxpayers the net effect is broadly neutral. For higher rate taxpayers the change significantly increases the tax cost of buy-to-let.
What Was the Position Before Section 24?
Before the changes were introduced, landlords could deduct their full mortgage interest cost from their rental income before calculating taxable profit. For a highly mortgaged portfolio, this could reduce the taxable rental income to a very small amount or even eliminate it entirely.
A landlord earning £20,000 in rent and paying £15,000 in mortgage interest would pay tax on only £5,000 of profit.
What Does Section 24 Actually Say?
Section 24 of the Finance (No.2) Act 2015 removed the ability to deduct finance costs (primarily mortgage interest) as an allowable expense. Instead, landlords receive a basic rate (20%) tax credit on their finance costs.
Using the same example:
- Rental income: £20,000
- Mortgage interest: £15,000
- Taxable rental profit (under Section 24): £20,000 (the full income, not reduced by interest)
- Tax at 40% (higher rate taxpayer): £8,000
- Less 20% credit on finance costs (20% of £15,000): £3,000
- Net tax payable: £5,000
Compare this to the pre-Section 24 position where the same landlord would have paid 40% on £5,000 profit = £2,000.
The tax bill has more than doubled, even though the underlying cash position has not changed.
Who Is Most Affected?
The impact of Section 24 depends heavily on your tax position:
Basic rate taxpayers (income under £50,270): For those who pay tax at 20%, the credit broadly offsets the lost deduction. The effect is largely neutral, though not entirely so in all cases.
Higher rate taxpayers (income over £50,270): The impact is substantial. The credit at 20% does not compensate for the lost relief at 40% or 45%.
People pushed into higher rate by rental income: This is particularly important. Under Section 24, rental income is taxed without the interest deduction, which can push total income into the higher rate band. This means the mortgage interest restriction can affect people who would otherwise be basic rate taxpayers.
Common Strategies Landlords Are Using
There is no simple way to undo the impact of Section 24, but there are strategies worth considering:
Reducing the mortgage. Paying down the mortgage reduces finance costs and therefore the Section 24 impact. This is not always practical, but where there are surplus funds it can reduce the tax cost significantly.
Reviewing the property portfolio. Some landlords have sold heavily mortgaged properties where the net cash position after tax no longer makes sense. Capital Gains Tax must be factored into any decision to sell.
Pension contributions. Making personal pension contributions reduces your adjusted net income, which can keep you within the basic rate band and reduce the impact of Section 24. Contributions also attract tax relief.
Incorporation. Some landlords have transferred their portfolios into a limited company, where mortgage interest remains fully deductible. However, incorporation has significant costs including Stamp Duty Land Tax, Capital Gains Tax on transfer (unless exemptions apply), and higher accounting costs. It is not suitable for everyone and requires careful analysis.
Note: this site focuses on personal tax rather than corporate tax, but if you are considering incorporation, independent advice covering both sides of the decision is essential.
How Section 24 Interacts with Making Tax Digital
From April 2026, landlords with rental income over £50,000 must use MTD-compatible software and submit quarterly updates to HMRC. The interaction with Section 24 means getting your expense categories exactly right in your software matters more than ever. Costs that are repairs (deductible) versus improvements (capital, not deductible against income) must be correctly classified.
FAQs
I only have one buy-to-let property with a small mortgage. Does Section 24 affect me? If you are a basic rate taxpayer and the mortgage interest is modest, the impact may be minimal. However, if the rental income pushes you into the higher rate band, or if the property income was previously sheltered almost entirely by interest deductions, it is worth calculating your revised position carefully.
Can I deduct mortgage arrangement fees? Yes. Mortgage arrangement fees can be deducted via the 20% credit in the same way as interest. They count as finance costs under Section 24.
My property is in both my and my spouse’s name. Does Section 24 still apply? Yes, Section 24 applies to all residential property income from individuals. Where a property is jointly owned, each owner reports their share of income and finance costs separately, with each receiving the 20% credit on their portion of the finance costs.
I make a loss after mortgage interest. Do I still pay tax? Under Section 24 you pay tax on the rental income excluding the interest deduction, then receive the credit. This means it is possible to show a cash loss (because your interest costs exceed your profit) while still having a tax liability. This is one of the most troubling aspects of Section 24 for highly leveraged landlords.
Should I sell my buy-to-let because of Section 24? This is a significant financial decision that depends on your specific numbers, your mortgage terms, your overall tax position, and current property values. A tax specialist can model the numbers for your situation and help you make an informed decision.
Plan Your Landlord Tax Position Properly
Our principal tax adviser is an ACCA and ATT qualified tax specialist and HMRC Registered Agent with over 25 years of experience advising residential landlords across Kent on Section 24, rental income tax, and property disposal planning. Contact us today for a review of your landlord tax position.
Also see: Landlord Tax in Gravesend | Landlord Tax in Tonbridge | Landlord Tax in Maidstone
