Section 24 — sometimes called the 'landlord tax' — was introduced in the 2015 Autumn Statement and phased in between 2017 and 2020. It applies only to individual landlords, not limited companies. The restriction covers mortgage interest, loan arrangement fees, and other finance costs on loans used to acquire or improve residential investment properties.
The practical effect: where a higher-rate taxpayer previously deducted £12,000 of annual mortgage interest (saving £4,800 in tax at 40%), they now receive a £2,400 tax credit — an additional £2,400 in tax per year on the same property. For large portfolios with significant leverage, Section 24 can represent tens of thousands of pounds of additional annual tax liability.
How Section 24 works — the mechanics
The restriction replaces a deduction with a basic rate credit:
- Pre-2017: mortgage interest was deducted from rental income before calculating tax. A landlord earning £20,000 rent and paying £12,000 mortgage interest was taxed on £8,000 of profit
- Post-2020: mortgage interest is added back to rental income and a 20% credit applied. The same landlord is taxed on £20,000 of rental income (at their marginal rate) and then receives a £2,400 credit — effective tax on a 40% taxpayer is £8,000 − £2,400 = £5,600, not £3,200 (40% of £8,000)
- The credit is worth 20% of finance costs regardless of your actual tax rate. A basic rate (20%) taxpayer is unaffected — they receive a credit equivalent to the deduction they lost. A 40% taxpayer loses half their relief; a 45% taxpayer loses more
- The restriction covers: mortgage interest payments; arrangement and broker fees amortised over the loan term; interest on loans used to fund property improvements; and alternative finance payments on Islamic mortgages
- The restriction does not cover: capital repayment portions of a mortgage; insurance premiums; letting agent fees; repairs and maintenance; or other allowable expenses — these remain fully deductible
Impact on higher-rate and additional-rate taxpayers
Section 24 is most damaging to landlords in the 40% and 45% bands:
- Effective tax rate on mortgage interest: a 40% taxpayer now pays an effective rate of 20% on their finance costs (40% on income, less 20% credit). A 45% taxpayer pays an effective rate of 25%. Basic rate taxpayers are neutral
- Income band pushing: finance costs are added back to taxable income — this can push a landlord into a higher tax band even if their rental profit is modest. A landlord with employment income of £45,000 and rental income of £15,000 might have finance costs of £10,000 pushed back, taking their notional income to £70,000 and pushing rental profits into the 40% band
- High Income Child Benefit Charge: income pushed above £60,000 by the Section 24 addback triggers or increases the HICBC. For every £200 of additional notional income above £60,000, £100 of child benefit is recovered — an effective marginal rate of 50% on that band
- Personal allowance tapering: landlords with total income above £100,000 lose personal allowance at £1 per £2 of income. Finance cost addback can push income above this threshold, creating effective marginal rates of 60% between £100,000 and £125,140
- After-tax loss: where the yield on a property is close to the mortgage rate, Section 24 can produce an after-tax loss even where the gross rental income exceeds the mortgage interest. Model your portfolio at higher tax rates before acquiring additional properties
Limited company incorporation and Section 24
The Section 24 restriction does not apply to limited companies:
- Companies are exempt: limited companies can deduct mortgage interest and other finance costs as a business expense before calculating corporation tax liability. This is the primary driver of the shift to company ownership in the buy-to-let sector since 2017
- Corporation tax rates (2026): 25% for profits above £250,000; 19% for profits below £50,000 (small profits rate); marginal relief (effective rate between 19% and 25%) for profits between these thresholds. In most cases the effective rate is substantially below 40% or 45%
- Transfer costs: transferring existing properties from personal to company ownership triggers SDLT on the market value (including the 5% additional dwelling supplement), Capital Gains Tax on any gain from acquisition to transfer, and legal/conveyancing costs. For most landlords with existing portfolios, these costs outweigh the benefit unless the portfolio is large and long-term
- New purchases: landlords building a new portfolio or acquiring additional properties may find company ownership more efficient from day one — avoiding the SDLT and CGT transfer costs entirely
- Extraction costs: company profits are subject to corporation tax; extracting profits via dividend incurs income tax at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) above the £500 annual dividend allowance. The combined effective rate must be modelled against personal ownership to assess the true benefit
Tax planning options for individually-owned portfolios
Several strategies reduce Section 24 exposure without incorporation:
- Joint ownership with a lower-rate taxpayer: transferring a share of properties to a spouse or civil partner who pays basic rate tax allocates rental income at their lower marginal rate. The 20% credit is calculated on the full finance costs and split proportionally — the basic rate partner's share is Section 24 neutral
- Pension contributions: increasing pension contributions reduces adjusted net income, potentially keeping you below the higher-rate threshold (£50,270 in 2025/26) or the £100,000 personal allowance tapering point
- Overpaying mortgages: paying down capital reduces finance costs and therefore the Section 24 exposure. A debt-free property is entirely outside the restriction — all profit is taxed at your marginal rate on the profit only
- Portfolio rationalisation: selling low-yield, highly-leveraged properties where Section 24 produces an after-tax loss, and reinvesting into lower-leverage or higher-yield assets — factor CGT on disposal into the decision
- Seek specialist advice: Section 24 interacts with SDLT, CGT, IHT, and National Insurance in complex and sometimes counterintuitive ways. A specialist property tax accountant can model all scenarios for your specific circumstances and portfolio size
Frequently asked questions
Does Section 24 apply to all landlords, including basic rate taxpayers?+
Section 24 applies to all individual landlords — but basic rate (20%) taxpayers are largely unaffected in practice. The restriction replaces a deduction with a 20% credit, which for a 20% taxpayer produces the same result. The burden falls almost entirely on higher-rate (40%) and additional-rate (45%) taxpayers, for whom the credit is worth half or less of the deduction they previously received.
Does Section 24 apply to limited companies?+
No — Section 24 applies only to individuals. Limited companies can deduct mortgage interest and finance costs as a business expense before calculating corporation tax. This is why many investors are buying new properties through limited companies, though the transfer of existing personally-owned properties carries significant SDLT and CGT costs that often outweigh the benefit.
Can I claim mortgage interest as an expense anywhere on my tax return?+
No — not as a deductible expense. Under Section 24, finance costs cannot be deducted from property income on your SA105 property pages. Instead, you report the gross rental income and then claim a tax reduction (credit) equal to 20% of your finance costs on the main Self Assessment return (SA100). The effect is the same as a deduction only if you are a basic rate taxpayer.
I'm a higher-rate taxpayer and Section 24 has made my buy-to-let loss-making. What are my options?+
If Section 24 has made your property after-tax loss-making, your options are: (1) increase rent to improve the gross yield, subject to the Section 13 process; (2) overpay the mortgage to reduce finance costs; (3) transfer ownership to a lower-rate spouse or partner; (4) sell the property — with appropriate CGT planning; or (5) seek specialist tax advice on whether company incorporation makes sense given your specific portfolio and timeframe. There is no option within the individual ownership structure to avoid the restriction itself.