What Section 24 actually changed
Before April 2017, UK landlords holding residential property in personal names could deduct 100% of their mortgage interest as a business expense against rental income. The remaining net profit was taxed at the landlord's marginal income tax rate (20%, 40% or 45%). This matched how almost every other business treats borrowing costs.
Section 24 of the Finance (No. 2) Act 2015 changed this for residential property held by individuals or partnerships. Mortgage interest is no longer a deductible expense; instead, landlords get a flat 20% basic-rate tax credit on the mortgage interest, regardless of their actual income tax band.
For basic-rate taxpayers, this is roughly neutral — they were getting 20% relief before, they still get 20% via the new credit. For higher-rate (40%) and additional-rate (45%) taxpayers, the change is material: relief drops from 40-45% to a flat 20%.
The rule applies to all interest, fees and finance costs related to residential let property held by individuals — mortgage interest, mortgage arrangement fees, broker fees, loan interest on improvements, even credit card interest used for property purposes.
How Section 24 phased in (2017-2020)
| Tax year | Deductible interest | Replaced by 20% credit |
|---|---|---|
| 2016/17 and earlier | 100% | 0% |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 onwards | 0% | 100% |
So from 2020/21 to the current 2025/26 tax year, no mortgage interest is deductible against rental income for personal-name UK residential landlords — only the 20% basic-rate credit applies.
Worked example: £100k personal income, £20k rental property
Higher-rate-taxpayer landlord, £100,000 salary, owns one residential BTL personal name. Rent £20,000/year. Mortgage interest £12,000/year. Other allowable expenses £1,500/year.
Pre-Section 24 (e.g. 2016/17)
- Rental income: £20,000
- Less mortgage interest: £12,000
- Less other expenses: £1,500
- Taxable rental profit: £6,500
- Tax at 40% higher rate: £2,600
- Net rental cash kept: £20,000 − £12,000 − £1,500 − £2,600 = £3,900
Post-Section 24 (2020/21 onwards, today)
- Rental income: £20,000 (mortgage interest no longer deductible)
- Less other expenses: £1,500
- "Taxable" rental income: £18,500
- Tax at 40% on £18,500: £7,400
- Less 20% credit on £12,000 mortgage interest: £2,400
- Net tax owed: £5,000
- Net rental cash kept: £20,000 − £12,000 − £1,500 − £5,000 = £1,500
The same property leaves the landlord £2,400/year worse off post-Section 24 — a 60% reduction in net rental cash flow. Multiply that across a portfolio of 5+ properties and the total impact is £10,000-£25,000/year in lost cash flow.
Who Section 24 hits hardest
Three groups of landlords feel Section 24 most acutely:
- Higher-rate (40%) and additional-rate (45%) taxpayers. Relief drops from 40-45% to 20% on mortgage interest. Direct cash-flow hit.
- Highly-geared landlords. The more of your rental income that goes on mortgage interest, the bigger the relative impact. LTVs above 70% feel it worst.
- Basic-rate taxpayers pushed into higher-rate by the rule itself. Because rental income is now reported gross (before mortgage costs), the headline number is higher. Some landlords whose net income was previously under £50,270 find themselves crossing the higher-rate threshold on paper.
Basic-rate taxpayers without other complications saw no material change — they were getting 20% relief before and still do.
What Section 24 does NOT apply to
Section 24 is specifically about residential let property held by individuals or partnerships. It does NOT apply to:
- Limited company landlords. Property held inside a UK Ltd company is taxed under corporation tax rules, where mortgage interest is a fully deductible business expense. This is the entire reason for the post-2015 SPV BTL boom — see BTL via Ltd company tax.
- Commercial property. Mortgage interest on commercial property remains fully deductible.
- Furnished Holiday Lets (FHLs), historically. But this is changing — the FHL regime is being abolished from April 2025, and Section 24 will apply to former FHL properties from that date. See holiday let tax + FHL rules for the transition.
The limited-company workaround
Property held inside a UK limited company is taxed under different rules entirely:
- Rental income is corporation tax income, taxed at 19% (small profits rate, profit up to £50k), marginal relief between £50k-£250k, or 25% (main rate, above £250k).
- Mortgage interest is a fully deductible business expense against rental income — no Section 24 restriction.
- Profits stay inside the company until you take them out as dividends, at which point you pay dividend tax personally (8.75% basic / 33.75% higher / 39.35% additional).
The result for the worked example above (rerun through a Ltd company SPV):
- Rental income: £20,000
- Less mortgage interest: £12,000 (fully deductible)
- Less other expenses: £1,500
- Taxable profit: £6,500
- Corporation tax at 19%: £1,235
- Net profit retained in SPV: £5,265
If the landlord doesn't immediately need the cash personally, they can leave it in the SPV to fund the next deposit. If they extract it as a dividend at higher rate, they'd pay 33.75% on the dividend after a £500 allowance — netting roughly £3,400.
Still meaningfully better than £1,500 in the personal-name route — and the option to defer extraction is the bigger long-term win. See BTL via Ltd company tax for the full set-up mechanics, and SPV mortgages on Limited Company Mortgage for the financing side.
Should an existing landlord incorporate?
Transferring existing personal-name properties into a Ltd company triggers two costs:
- CGT on disposal. Transferring property to your own Ltd is treated as a sale at market value. If the property has appreciated since purchase, you owe CGT on the gain (24% residential rate for higher-rate taxpayers as of October 2024).
- SDLT on acquisition. The Ltd company is "buying" the properties from you, triggering full SDLT including the 5% additional-property surcharge.
For an established portfolio with significant capital gains, those two costs together can be 25-35% of the portfolio value. Whether incorporation makes sense depends on:
- How much of the portfolio's gain has been crystallised
- Whether you qualify for Section 162 incorporation relief (which can defer the CGT)
- Your expected holding period — incorporation pays back over years, not months
- Your future acquisition plans — Ltd-from-day-one is simpler for new purchases than incorporating later
For most established personal-name landlords, the standard advice is: leave existing properties personal, buy future properties via SPV. For landlords who genuinely operate a "property business" (typically 5+ properties, 20+ hours/week active management), Section 162 incorporation relief can make full portfolio incorporation viable — but it's a case-by-case decision with a specialist landlord accountant.