Section 24 FA 2015 has quietly changed the way thousands of UK landlords are taxed, and many are still feeling the pinch. Since the rules came into full effect in April 2020, landlords can no longer deduct their full mortgage interest from their rental income before working out their tax bill.
According to HMRC, it is estimated that by 2029 to 2030, 2.4 million landlords will face an increase in tax as a result of property income tax changes. The result is a bigger tax bill, even when the rent coming in has not changed.
Section 24 has changed the rules for UK landlords in a big way, and many are still catching up. It comes from the Finance Act 2015, and it changed how landlords get tax relief on their mortgage interest. Before the change, landlords could deduct their mortgage interest costs from their rental income to arrive at their net rental profit or loss for tax purposes, before working out how much tax they owed. That made a real difference to how much money they kept at the end of the year. Now, that is no longer allowed.
Instead of a full deduction, landlords now get a basic rate tax credit worth 20% of their mortgage interest. For landlords who pay the basic rate of Income Tax, the difference is not too bad. But for those paying the higher rate of 40% or the additional rate of 45%, the gap is significant. They are paying more tax on the same income, even if their profits have not gone up.
The section 24 property tax rules have hit thousands of UK landlords hard, especially those with large mortgages and tight profit margins. Some have seen their tax bills double. Others have found that their properties are barely breaking even after tax, even when the rent covers the mortgage.
Understanding these rules is the first step to doing something about them. If you are unsure how section 24 affects your rental income, HMRC’s guidance on the mortgage interest restriction explains the basics clearly. For personalised support, ETC Tax’s property tax team can help you understand where you stand and what your options are.
To understand why section 24 property tax rules matter, it helps to know how property income and expenses were treated beforehand. Before April 2017, the system was straightforward. Landlords could deduct their full mortgage interest payments from their rental income before working out their taxes. Only the net profit was taxed. This made buy-to-let investing much more tax-efficient, especially for higher-rate taxpayers.
Here is a simple example of how it worked:
A higher-rate taxpayer would only owe tax on that £8,000. The mortgage interest acted as a direct cost that reduced the tax bill in a meaningful way. For landlords with large mortgages, this made a huge difference.
The rules started changing in April 2017. The government phased the restriction in gradually over four years:
By April 2020, the full restriction was in place. Landlords could no longer reduce their taxable income using mortgage interest at all. HMRC’s Income Tax guidance outlines how rental income is now assessed. If this change has affected your tax position, ETC Tax’s private client tax advisers can help you review your situation and plan.
Under the current rules, landlords must report their full rental income to HMRC without any deduction for mortgage interest. Instead of a deduction, they receive a tax credit equal to 20% of their mortgage interest payments. This credit is applied after the tax bill has already been worked out, and is a credit against the overall tax bill for the year.
Here is a simple breakdown of how that looks in practice:
For a basic rate taxpayer paying 20%, the credit covers the tax on the interest, so the impact is relatively small. But for a higher-rate taxpayer paying 40%, the credit only covers half of what they actually owe on that interest. The other half comes straight out of their pocket.
This is what makes the section 24 property tax so costly for higher earners. They are paying tax on income that was already spent on the mortgage. It is not a profit, but it is still being taxed as if it were.
There is also another issue worth knowing about. If your total income goes above £100,000, your personal allowance starts to reduce. Section 24 can push landlords over this threshold without them realising, which increases their tax bill even further.
HMRC’s Self Assessment guidance explains how to report rental income correctly. ETC Tax’s property tax advisers regularly help landlords work through these calculations and avoid costly mistakes.
Section 24 does not affect every landlord in the same way. The rules apply to individuals who let residential property in their own name. If you own a buy-to-let or a portfolio of properties personally, the restriction applies to you. If the properties are held inside a limited company, the rules are different, and finance costs can still be deducted in full for the purposes of corporation tax.
The landlords who feel the biggest impact are usually those who:
One of the less talked-about effects of section 24 property tax is what happens near the £100,000 income mark. When your total income exceeds this figure, your personal allowance begins to reduce by £1 for every £2 earned above it. By the time you reach £125,140, the personal allowance is gone entirely. This creates an effective tax rate of 60% in that income range, which is a shock for many landlords.
Another trap catches many of the same landlords, and it starts even earlier than £100,000. It’s called the High Income Child Benefit Charge. It kicks in once your income goes over £60,000.
Between £60,000 and £80,000, you pay back 1% of your Child Benefit for every £200 you earn above £60,000. At £80,000, the whole benefit is gone. So a landlord earning £70,000 with two children could already be losing over £2,000 a year, before rental profits push them any higher.
If their income then climbs past £100,000, they hit the personal allowance taper too. The two charges don’t work the same way, but together they mean landlords in this income range often lose far more from extra income than the headline tax rate suggests.
The charge is based on the higher earner’s own income, not household income. So two parents each earning £59,000 keep their full Child Benefit, while a single earner on £61,000 does not.
If you pay the basic rate of Income Tax, the 20% tax credit largely offsets the restriction. The impact is still worth reviewing, but it is generally less severe than for higher earners.
HMRC’s Capital Gains Tax and property guidance covers related areas worth understanding. ETC Tax’s private client tax team works with landlords at all income levels to review how the restriction affects them personally.
The extra tax from the Section 24 property tax rules can be significant, and the exact amount depends on your income, your mortgage size, and how your properties are structured. For many landlords, it is not a small figure.
Take a higher-rate taxpayer with £30,000 in annual mortgage interest:
Over five years, that is £30,000 in extra tax. For landlords with larger portfolios or bigger mortgages, the numbers get even larger.
Some landlords are now in a position where the rent coming in covers the mortgage payment, but not the tax bill on top. This happens because tax is now calculated without the mortgage interest being treated as a cost for tax purposes, even though it is a very real cost in practice.
This situation affects both small-scale landlords with one or two properties and those with larger portfolios. It is not sustainable long-term without a proper plan in place.
The first step is understanding exactly how much extra tax you are paying because of Section 24. HMRC’s Income Tax rates and allowances guidance helps explain the bands and thresholds involved. ETC Tax’s property tax specialists can run through the numbers with you and identify where savings might be possible.
There is no one-size-fits-all answer to Section 24, but there are several practical steps landlords can take to reduce the impact. The right option depends on your income, your portfolio size, and your long-term plans.
Start by getting a clear picture of your total income and how the restriction is affecting your tax bill. Income from employment, savings, or other sources all count towards your tax band. In some cases, adjusting how income is taken or structured can reduce the overall burden.
If your partner pays a lower rate of Income Tax, shifting some or all of the rental income to them can reduce the household tax bill. This needs to be done properly, with legal documentation in place, to be recognised by HMRC.
Reducing your mortgage balance or switching to a lower interest rate lowers the amount affected by the restriction. It does not remove the problem, but it can reduce it.
Moving properties into a limited company removes them from the section 24 rules. This is explored in more detail in the next section. ETC Tax’s property tax team and private client tax advisers can help you weigh up which of these options makes the most sense for your situation.
For some landlords, moving their properties into a limited company is the most effective way to step outside the Section 24 property tax rules. Companies are not subject to the mortgage interest restriction. They pay Corporation Tax on their profits, and they can still deduct finance costs in full before working out what is owed.
The main reasons landlords consider incorporation are:
Incorporation is not free, and it is not simple. Transferring personally owned properties into a company is treated as a sale for Capital Gains Tax purposes. If the properties have gone up in value since you bought them, a tax bill may be triggered at the point of transfer. HMRC’s Capital Gains Tax guidance explains how gains on property disposals are calculated.
Stamp Duty Land Tax may also apply to the transfer, depending on the value of the properties and how many are being moved. These upfront costs need to be weighed carefully against the long-term tax savings.
In some cases, relief from Capital Gains Tax may be available if HMRC accepts that the landlord is running a genuine property business. This is a high bar to meet and is assessed strictly. It is not something to attempt without proper advice.
ETC Tax’s private client tax team helps landlords work through these decisions carefully. For those looking at broader company structures, the buying or selling a company guidance from ETC Tax is a useful resource.
Section 24 has made property tax more complicated for a lot of landlords, and trying to work through it alone can lead to costly mistakes. Getting the right advice early means you have more options, not fewer.
ETC Tax helps landlords, investors, and property owners across the UK figure out exactly where they stand and what they can do about it. The team looks at your full picture, from how your properties are owned to whether a different structure could work better for you going forward.
Whether you are thinking about making changes now or just want to understand your options, it is worth having a conversation sooner rather than later.
You can explore the full ETC Tax property tax service to see how the team can help, find wider support through private client tax advice, or simply get in touch with ETC Tax today.
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