Section 24 Explained – What It Means for UK Property Investors (With Examples)
Section 24 Explained – What It Means for UK Property Investors (With Examples)
If you're a landlord in the UK, you've probably heard the term Section 24 thrown around—often with a groan. But what exactly is it? And more importantly, how does it affect your bottom line?
In this blog, we’ll break down what Section 24 is, who it affects, and what your options are. We’ll keep it clear, real-world focused, and jargon-free, with examples to show the real impact.
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What Is Section 24?
Section 24 of the Finance (No.2) Act 2015 is a change to how landlords are taxed on mortgage interest and other finance costs.
Before Section 24, landlords could deduct 100% of their mortgage interest (and similar costs) from their rental income before paying tax.
Since the changes were fully phased in by April 2020, landlords can no longer deduct those finance costs. Instead, they receive a basic rate tax credit (20%) on those expenses.
Who Does It Affect?
Section 24 affects individual landlords who own rental property in their personal name.
It does not apply to:
Limited companies (SPVs)
Commercial properties
Furnished holiday lets (in most cases)
Property developers (where property is held as trading stock)
So if you're a buy-to-let investor with mortgages, you are almost certainly impacted unless your properties are held in a company structure.
Real Example: The Pre vs Post Section 24 Comparison
Let’s say you’re a landlord with the following annual figures:
Rental Income: £30,000
Mortgage Interest: £20,000
Other expenses: £2,000
Before Section 24 (Full Mortgage Interest Deduction)
Taxable Profit = £30,000 – £20,000 – £2,000 = £8,000
If you’re a higher-rate taxpayer (40%), your tax bill = 40% of £8,000 = £3,200
After Section 24 (No Mortgage Interest Deduction)
Taxable Profit = £30,000 – £2,000 = £28,000
Tax = 40% of £28,000 = £11,200
But you get a 20% credit on mortgage interest:
20% of £20,000 = £4,000
Final Tax Bill = £11,200 – £4,000 = £7,200
Impact:
Tax paid before Section 24 = £3,200
Tax paid after Section 24 = £7,200
That’s a £4,000 increase – just like that!
Why Was Section 24 Introduced?
HMRC introduced Section 24 to:
“Level the playing field” between homeowners and landlords
Slow down the buy-to-let boom
Increase tax revenue from private landlords
The government argued that landlords were getting unfair tax breaks. But many argue it’s penalised those providing much-needed rental housing.
What Counts as a Finance Cost?
Section 24 applies to any finance-related costs, including:
Mortgage interest
Loan interest (used to purchase or improve a property)
Arrangement fees
Overdraft interest (if related to rental activity)
Remember: even if you remortgage or refinance, interest on that borrowing is subject to Section 24.
Are You a Basic or Higher-Rate Taxpayer?
You might think, “I’m a basic-rate taxpayer, so I’m safe.” But beware!
Section 24 can push you into a higher tax band—on paper.
Because you’re now taxed on gross rental income, your total "income" looks higher, even if your actual profit hasn't changed.
Example:
Salary: £30,000
Rental Income: £20,000
Mortgage Interest: £15,000
Before Section 24, your rental profit = £5,000, and your total income = £35,000 (basic rate).
After Section 24, your taxable rental profit = £20,000, so income = £50,000.
👉 You’re now pushed into the higher-rate band, even though you're not actually earning more.
What Can You Do About Section 24?
Section 24 is here to stay. But there are ways to reduce the impact or structure your property business more tax-efficiently.
1. Use a Limited Company
This is the most popular solution for new investors.
Companies are not subject to Section 24
Mortgage interest is fully deductible
Profits are taxed at corporation tax rates (currently 25%)
You control when and how profits are withdrawn
Read our full guide: Limited Company vs Personal Name for Property Investment
2. Incorporate Your Portfolio
Already own properties personally? You might be able to transfer them to a company.
This involves:
Legal transfer (could trigger SDLT and CGT)
Applying for Incorporation Relief (Section 162 TCGA)
Meeting “business” tests (e.g. managing multiple properties, active involvement)
Get advice first—this is complex but potentially worthwhile.
3. Reduce Debt Levels
Paying down mortgage debt will reduce interest costs—and therefore Section 24’s impact.
This works well for landlords nearing retirement or looking for long-term stability over growth.
4. Increase Rents Carefully
Some landlords are raising rents to cover increased tax bills. Just be cautious:
Check what’s competitive in your area
Consider tenant loyalty and affordability
Think long-term: constant turnover can eat into profits
What About Holiday Lets?
Good news—furnished holiday lets (FHLs) are exempt from Section 24.
If your property qualifies (must be available 210+ days/year, let at least 105), then:
You can still deduct mortgage interest
You qualify for capital allowances
Profits count as earned income (can contribute to pensions)
This makes holiday lets a potential alternative strategy.
Key Takeaways
Section 24 limits mortgage interest relief for landlords owning property personally.
It can double your tax bill in some cases, especially if you're a higher-rate taxpayer.
Holding property in a limited company is not affected by Section 24.
Strategies to deal with Section 24 include: incorporation, debt reduction, using FHLs, or rebalancing your portfolio.
Always get tailored advice before making changes.
Summary
Let’s Talk – We’re Property Tax Specialists
Section 24 doesn’t have to ruin your portfolio—but ignoring it can hurt your profits big time.
At Sky Vista Property Solutions, we help UK landlords navigate the best structure for their investments, minimise tax, and stay fully compliant.
📧 Email us at [email protected] for a free consultation or call us to discuss your portfolio.
