The introduction of Section 24 of the Finance Act 2015 has significantly changed how landlords in the UK are taxed on their rental income. These reforms, which were phased in from April 2017 to April 2020, continue to reshape the property investment landscape today.
Whether you’re new to these rules or already feeling their effects, understanding what Section 24 means, and how to respond strategically, is essential for every landlord.
What Is Section 24?
Section 24 redefined how mortgage interest and finance costs are treated for tax purposes. Before its introduction, landlords could deduct 100% of their mortgage interest and finance costs from their rental income before calculating tax.
Now, this relief has been replaced with a 20% basic rate tax credit, which means landlords are taxed on their gross rental income rather than their profits.
Why Was Section 24 Introduced?
The government introduced Section 24 as part of a broader effort to make housing more accessible, particularly for first-time buyers.
In the mid-2010s, the buy-to-let market was booming. Property investors were expanding portfolios rapidly, and competition between landlords and homebuyers pushed prices higher. Section 24, along with other measures such as the additional 3% stamp duty surcharge, aimed to rebalance the housing market by:
- Reducing the appeal of buy-to-let as an investment option,
- Encouraging homeownership, and
- Creating fairer competition between landlords and residential buyers.
While these goals were well-intentioned, the policy has had far-reaching consequences for landlords’ finances.
Before and After Section 24
Before Section 24:
- Landlords could offset 100% of mortgage interest and finance costs.
- Tax was calculated on profit after expenses.
- Many landlords enjoyed lower effective tax rates.
After Section 24:
- Tax is now calculated on the full rental income, not profit. Although other allowable expenses, such as maintenance, insurance, and letting agent fees, can still be deducted as before.
- Landlords receive only a 20% basic rate tax credit on mortgage interest, regardless of their tax band.
Finance costs affected include:
- Mortgage interest payments
- Loan interest for property improvements
- Mortgage arrangement fees
- Early repayment charges
The impact has been most significant for higher-rate taxpayers, many of whom now face substantially larger tax bills and reduced profit margins.
How Section 24 Works – A Simple Example
Let’s break it down:
| Example | Basic Rate (20%) | Higher Rate (40%) |
| Rental Income | £15,000 | £15,000 |
| Mortgage Interest | £5,000 | £5,000 |
| Tax on Rental Income | £3,000 | £6,000 |
| Less 20% Tax Credit on Interest | £1,000 | £1,000 |
| Final Tax Bill | £2,000 | £5,000 |
The difference is clear, while basic rate taxpayers are less affected, higher-rate landlords are seeing a sharp drop in net returns.
Who Is Affected by Section 24?
Section 24 applies to:
- Individual landlords who own residential rental property in their own name,
- UK residents earning rental income, and
- Those with mortgages or property-related loans.
It does not apply to:
- Limited companies (as mortgage interest remains a deductible business expense),
- Furnished holiday lets, or
- Commercial property holdings.
How Has Section 24 Affected Landlords?
The financial effects of Section 24 have been widespread. Common challenges include:
- Higher tax bills, especially for higher-rate taxpayers,
- Reduced profitability even for previously successful properties,
- Pressure to increase rents to cover additional costs,
- Cash flow difficulties, and
- Unintended tax band increases, pushing some basic-rate landlords into higher brackets.
These challenges have led many investors to reassess their property strategies.
How Landlords Are Responding
Since the introduction of Section 24, landlords have adapted in a variety of ways:
1. Incorporation
Setting up a limited company has become increasingly popular. Companies can still deduct mortgage interest as an expense, and corporation tax rates may provide additional benefits. The number of landlords incorporating their portfolios has risen sharply in recent years.
2. Selling Properties
Some landlords, particularly those with smaller portfolios or high borrowing costs, have chosen to sell part or all of their holdings due to reduced profitability.
3. Adjusting Investment Focus
Others have diversified into areas not impacted by Section 24, such as:
- Furnished holiday lets,
- Commercial property, or
- Debt-free acquisitions to avoid mortgage interest exposure.
4. Increasing Rents
To maintain margins, many landlords have raised rents, though this has contributed to affordability challenges in some regions.
Impact on Tenants and the Wider Market
While Section 24 was designed to help homebuyers, its ripple effects have influenced the rental sector.
- Rising rents as landlords pass on increased costs,
- Reduced housing supply as some landlords exit the market, and
- Affordability pressures in areas where rent growth outpaces income growth.
Recent data suggests that a growing number of landlords have sold rental properties due to higher tax liabilities and tighter profit margins.
What Landlords Can Do Now
Section 24 is unlikely to be reversed soon, but there are practical steps landlords can take to minimise its impact:
- Review your portfolio – assess which properties remain viable post-tax.
- Seek professional tax advice – expert guidance can reveal opportunities for restructuring or savings.
- Consider incorporation – for some, moving future investments into a company may be beneficial.
- Revisit mortgage options – refinancing or fixing rates may improve cash flow.
- Enhance yields – through refurbishments, higher-value rentals, or short-term lets.
- Use smart accounting tools – track rental income, expenses, and tax efficiently.
Can I still deduct mortgage interest?
Not fully, you can only claim a 20% basic rate tax credit on interest paid.
Is tax still based on profit?
No. You’re taxed on your total rental income after deducting other allowable expenses such as maintenance, insurance, and letting agent fees, and then the tax credit is applied.
Does it apply to all landlords?
No. It only affects individuals. Limited companies and commercial landlords are exempt.
Does Section 24 affect stamp duty or capital gains?
No, it only changes how income tax is calculated on rental earnings.
Moving Forward with Confidence
There’s no denying that Section 24 has added complexity and pressure for UK landlords, particularly those with mortgages. But with the right strategy and professional guidance, you can still achieve long-term success in property investment.
At Accounting People, we help landlords navigate tax changes, structure their portfolios efficiently, and make informed financial decisions. Whether you’re managing one property or an extensive portfolio, our team can guide you towards a more tax-efficient and resilient future.
