What is Section 24 and why does it matter?
Section 24 is the UK tax rule, fully in force since April 2020, that stops individual landlords deducting mortgage interest from their rental income before calculating tax. Instead of treating interest as an expense, landlords now receive only a basic-rate 20% tax credit on it. For higher-rate and additional-rate taxpayers this is a significant change, because they effectively pay tax on money they never keep — the interest still leaves their account, but it no longer reduces their taxable profit. This single rule is the main reason most professional landlords now buy through a limited company.
How did buy-to-let tax work before Section 24?
Before the change, landlords could simply subtract mortgage interest from their rental income and pay tax on what was left. A landlord earning 12,000 pounds in rent and paying 8,000 pounds in interest would be taxed on 4,000 pounds of profit. It was straightforward and, crucially, it meant the tax followed the real economic profit.
How does Section 24 change the maths?
Under Section 24, that same landlord is taxed on the full 12,000 pounds of rent, then given a 20% credit on the 8,000 pounds of interest. For a basic-rate taxpayer the outcome is broadly similar to before. For a higher-rate taxpayer it is not: they pay 40% tax on the full rent but only get relief at 20% on the interest, so their effective tax bill rises sharply. In severe cases, a heavily mortgaged higher-rate landlord can end up paying more tax than they make in real profit.
Section 24 can also have a knock-on effect: because the full rent is added to your income, it can push you into a higher tax band, reduce child benefit, or affect other means-tested thresholds, even though your true profit has not changed.
Why does a limited company avoid Section 24?
Section 24 applies only to individuals. Companies are taxed under different rules and continue to deduct mortgage interest in full as an ordinary business expense before paying corporation tax on the remaining profit. So a company earning 12,000 pounds in rent with 8,000 pounds of interest pays corporation tax on just 4,000 pounds — the same as the old, pre-Section 24 position for individuals. For a leveraged higher-rate landlord, moving to a company structure can produce a materially lower tax bill. Our guide to SPV buy-to-let mortgages explains how these companies are set up.
Who is most affected by Section 24?
The impact depends on your tax band and how much you borrow:
- Higher and additional-rate taxpayers with mortgages: most affected — the shortfall between full tax and a 20% credit is large.
- Basic-rate taxpayers: less affected, though the added rent can still nudge you towards the higher band.
- Mortgage-free landlords: unaffected, because there is no interest to restrict.
- Company landlords: outside Section 24 entirely.
Is switching to a company always the answer?
Not automatically. Moving existing personal property into a company is a sale that can trigger capital gains tax and stamp duty, and extracting profit from a company brings its own tax. The decision balances the ongoing Section 24 saving against those one-off and ongoing costs. Our comparison of SPV versus personal name works through the trade-offs, and you should always take specialist tax advice on your own figures.
How do you finance a company buy-to-let?
Limited company lending is specialist, so most landlords use a broker or marketplace rather than the high street. Assesr packages your SPV deal into a lender-ready credit paper in around 60 seconds and matches it to specialist buy-to-let finance lenders whose criteria fit, with nothing to pay until completion — just the 0.5% Assesr Fee on drawdown, a quarter of the typical broker fee.
Frequently asked questions
What is Section 24 for landlords?
Section 24 is the tax rule that stops individual landlords deducting mortgage interest from rental income before tax. Instead, they receive a basic-rate (20%) tax credit on the interest. This means higher-rate and additional-rate taxpayers effectively pay tax on income they use to pay the mortgage.
Does Section 24 apply to limited companies?
No. Section 24 applies only to individuals. Limited companies continue to deduct mortgage interest as a normal business expense before calculating taxable profit, which is the main reason so many landlords now buy through an SPV.
How do I know if Section 24 affects me?
Section 24 bites hardest if you are a higher-rate or additional-rate taxpayer with mortgaged rental property. If the extra rental income pushes you into a higher tax band, or you already sit in one, the loss of full interest relief can significantly increase your tax bill. Basic-rate taxpayers are less affected.