Section 24

Tax legislation restricting mortgage interest relief for individual buy-to-let landlords to a 20% tax credit, regardless of their marginal tax rate.

Section 24 of the Finance Act 2015 changed the tax treatment of mortgage interest for residential landlords holding property in their personal name (not in a limited company).

Before Section 24 was phased in (2017-2020), landlords could deduct the full mortgage interest from rental income before calculating taxable profit. This meant the effective tax treatment of mortgage interest reflected the landlord's marginal rate.

Under the current Section 24 rules: the full rental income is added to taxable income (increasing the tax band assessment), and a 20% tax credit on mortgage interest is applied. For basic rate taxpayers, the net effect is broadly neutral. For higher-rate and additional-rate taxpayers, the restriction significantly increases the tax payable on rental profits.

Section 24 does not apply to limited companies, which is one of the primary drivers of the shift towards SPV companies for BTL investment by higher-rate taxpayers.

The Section 24 effect is most severe for landlords who are pushed from basic rate into higher rate by their rental income, or who have thin cashflow margins that become negative on an after-tax basis despite positive pre-tax cashflow.

Worked example

Higher-rate taxpayer. Rental income: £14,400. Mortgage interest: £9,000. Other costs: £2,000. Pre-S24 taxable profit: £3,400. Tax at 40%: £1,360. Under S24: £14,400 added to income (pushing into 40% band). Tax on rental income at 40%: £5,760. Less 20% credit on £9,000 interest: £1,800. Net tax attributable to rental: £3,960. The landlord pays £2,600 more tax under S24 than under the old rules, on the same property.

Referenced in

Is buy-to-let still worth it in 2026?Limited company vs personal name: which is right for your portfolio?UK landlord tax guide: income, capital gains, and SDLT