What is Section 24?
Section 24 of the Finance (No. 2) Act 2015 removed the right for individual landlords to deduct mortgage interest as a business expense. Previously, landlords subtracted mortgage interest from rental income before calculating tax. From April 2020 — after a four-year phase-in — interest is no longer deductible at all. Instead, landlords receive a flat 20% tax credit on finance costs, regardless of their marginal rate.
The result: a higher-rate (40%) or additional-rate (45%) taxpayer now pays tax on gross rental income, then gets back only 20p for every £1 of mortgage interest. The remaining 20–25p is a permanent extra tax cost.
Before vs after — the mechanics
| Step | Pre-2017 (old rules) | Post-2020 (Section 24) |
|---|---|---|
| Rental income | £18,000 | £18,000 |
| Mortgage interest | −£10,000 (deducted) | Not deducted |
| Taxable profit | £8,000 | £18,000 |
| Tax @ 40% | £3,200 | £7,200 |
| 20% credit on interest | — | −£2,000 |
| Net tax bill | £3,200 | £5,200 |
Same property, same mortgage — but £2,000 more tax every year. This is the Section 24 effect on a 40% taxpayer.
Who does it hit hardest?
Section 24 only applies to individual landlords paying income tax. Limited companies are unaffected — they still deduct mortgage interest as a business expense. The damage scales with your marginal rate:
Basic-rate taxpayers are theoretically unaffected — the 20% credit matches their rate. But watch the income-stacking effect: because gross rental income now counts in full, many landlords are pushed into higher-rate tax on their employment income, or lose their Personal Allowance above £100,000.
Personal landlord vs Ltd Co
Personal ownership
- Section 24 applies — 20% credit only
- Income taxed at 20%, 40% or 45%
- No SDLT on existing properties
- Simpler admin, no Corp Tax return
- CGT on sale: 18% / 24% (residential)
- Rental losses offset other income
Limited company
- Full mortgage interest deduction
- Corp Tax: 19–25% on profits
- 5% BTL SDLT on transfer-in (if applicable)
- Annual accounts + CT600 required
- CGT on sale: Corp Tax rate, not CGT
- Profits extracted via salary/dividend
The incorporation trap
Moving existing properties into a limited company is not a simple fix. HMRC treats the transfer as a disposal at market value, triggering Capital Gains Tax on any uplift. You also pay the 5% BTL SDLT surcharge on the company purchase. For many landlords with appreciated properties, the upfront tax cost wipes out years of Section 24 savings.
Incorporation relief exists but requires the portfolio to qualify as a property business — typically meaning multiple properties managed as a genuine trading activity, not passive investment. This is contested territory and HMRC disputes many claims.
When does a Ltd Co make sense?
The company route is most compelling for landlords who:
Buy new properties going forward — no CGT or SDLT on transfer, structure is clean from day one.
Reinvest profits rather than draw income — Corp Tax at 19–25% beats 40–45% income tax while profits stay in the company.
Are higher-rate taxpayers with significant mortgage debt — the interest deduction saves more than the Corp Tax rate.
Have a long-term hold strategy — the company structure pays off over a decade+ horizon, not the first few years.
Section 24 doesn't make property investing unviable — it makes highly leveraged personal ownership at higher tax rates unviable. Lower LTV ratios, limited company structures for new purchases, or accepting basic-rate tax exposure are the main responses. Always model your specific numbers with a specialist property accountant before restructuring.