Guide · 10 min read
What Section 24 actually says, the 20% basic-rate credit in force since April 2020, who it hits, why limited companies escape it, and the honest costs of incorporating.
Written by Matt Lenzie · Published 10 June 2026
Advice from
Matt Lenzie · 25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ raised for property clients.
25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ raised for property clients.
Section 24 is the provision of the Finance (No. 2) Act 2015 that stopped individual landlords deducting mortgage interest from their rental income, replacing the deduction with a 20% basic-rate tax credit. Phased in from April 2017 and fully in force since April 2020, it is the tax change that did more than any other to push UK buy-to-let into limited companies, because companies are entirely outside it.
We are mortgage brokers, not accountants, but Section 24 sits underneath almost every structuring conversation we have, so we have learned to explain it properly. This guide sets out the mechanism, the worked numbers, who genuinely gets hurt, the mistakes we see on self assessment, and an honest view of the company route as the response, including what it costs.
Before April 2017, rental profit for an individual landlord was calculated the obvious way: rent, less expenses, less mortgage interest, equals taxable profit, taxed at your marginal rate. Mortgage interest was an expense like any other.
Section 24 removed mortgage interest, and all finance costs, from that calculation and replaced the deduction with a credit:
The transition ran over four tax years, restricting 25% of interest in 2017/18, 50% in 2018/19, 75% in 2019/20, and 100% from 2020/21. Every tax year since April 2020 has been under the full regime, so the "phase-in" framing you still see online is six years out of date.
The stated policy aim, announced at the 2015 Summer Budget, was to "level the playing field" between landlords and owner-occupiers: homeowners get no tax relief on their mortgage interest, so, the argument ran, neither should investors bidding against them for the same houses. Critics pointed out the obvious asymmetry, that landlords are taxed on the rent homeowners do not receive, and that no other UK business is taxed on its revenue rather than its profit. The debate has never really closed, and "tenant tax" campaigns still petition for repeal.
For planning purposes, though, the politics point one direction: the restriction has survived four governments, multiple fiscal crises and a decade of lobbying. Nothing in current policy suggests repeal, and the prudent assumption for any borrowing decision is that Section 24 is permanent. Equally permanent, so far, is the corporate exemption, since companies were never within the provision's scope; the playing-field logic was aimed at individual investors, and incorporation has been the market's entirely lawful answer ever since.
Numbers make it concrete. Take a landlord with £15,000 of rent, £9,000 of mortgage interest and £3,000 of other costs.
Under the old rules: taxable profit was £15,000 less £9,000 less £3,000, so £3,000. A 40% taxpayer paid £1,200.
Under Section 24: taxable profit is £15,000 less £3,000, so £12,000. A 40% taxpayer owes £4,800 before the credit, then receives 20% of the £9,000 interest, £1,800, leaving a bill of £3,000.
Same property, same rent, same mortgage: the tax went from £1,200 to £3,000. And since the actual cash generated by the property is £3,000 a year, this landlord now hands every pound of cash flow to HMRC. For a 45% additional-rate taxpayer the same sums produce a bill of £3,600, which is more than the property makes.
Run the same example for a basic-rate taxpayer and the result is unchanged from the old rules: 20% tax on the grossed-up figure, less the 20% credit, lands in exactly the same place as deducting the interest. Section 24 was engineered to leave basic-rate landlords alone, on paper.
The full force lands on landlords with all three of: higher or additional rate income, personal-name ownership, and meaningful leverage. The more mortgage interest, the wider the gap between the 40 to 45% relief lost and the 20% credit received.
The subtler victims are landlords who were basic-rate. Because the calculation adds grossed-up rental income to your other income, the restriction can push you over the £50,270 higher-rate threshold even though your true economic profit never changed. A £45,000 salary plus £12,000 of pre-interest rental "profit" makes you a higher-rate taxpayer under the new arithmetic where the old arithmetic kept you below the line. The same gross-up can trigger the High Income Child Benefit Charge and, at higher levels, the personal allowance taper, costs that never appear in a simple rate comparison.
Unaffected, for completeness: limited company landlords, unmortgaged landlords, commercial property owners, and basic-rate landlords whose grossed-up income stays basic-rate. If you sit in one of those categories, Section 24 is background noise; if you sit in the first paragraph's category, it is the largest line in your property tax return, and it grows with every rate rise because the restricted relief is a function of the interest you pay.
No, and this is the pivot point of modern buy-to-let structuring. A limited company calculates its rental profit the way individuals used to: rent, less expenses, less the full mortgage interest. The remainder is charged to corporation tax at 19 to 25% depending on profit level. There is no restriction, no credit mechanism, no gross-up.
The same £15,000-rent property inside a company: £15,000 less £3,000 costs less £9,000 interest leaves £3,000 of profit, and corporation tax at the 19% small profits rate is £570. Against the £3,000 the 40% personal taxpayer now pays, the gap speaks for itself, with the honest caveat that extracting company profits as dividends adds a personal tax layer, so the full advantage accrues to landlords reinvesting profits rather than living on them. We walk through both sides in buy-to-let through a limited company, and our limited company vs personal calculator models your own numbers over five and ten years.
There is a second-order benefit on the lending side that flows from the same logic. Because the company's tax position is lighter, lenders stress company applications at a 125% interest cover ratio rather than the 145% applied to higher-rate individuals, in line with the PRA's SS13/16 expectations on buy-to-let underwriting. The structure that fixes the tax also unlocks more leverage from the same rent.
From conversations with clients' accountants, the recurring self assessment errors:
If any of this is news, that is the cue to involve an accountant rather than fight the return yourself: the restriction is mechanical, but its interactions are not.
Four realistic responses, in rising order of commitment:
Rebalance to a lower-rate spouse. Transfers between spouses and civil partners are free of capital gains tax, and shifting beneficial ownership toward a basic-rate partner moves rental income into the band where the credit fully compensates. Useful at the margin; limited by the partner's own headroom.
Deleverage. Section 24 only bites on finance costs. Reducing the mortgage, from savings or a lower-LTV remortgage, shrinks the problem arithmetically. For landlords near retirement with idle cash, this is sometimes the quiet, boring, correct answer.
Buy the next property in a company, leave the rest alone. The lowest-friction structural response: existing properties stay personal, every new purchase goes through an SPV with a limited company buy-to-let mortgage. No CGT event, no stamp duty on a transfer, and the portfolio migrates by attrition.
Incorporate the existing portfolio. The full move: sell the properties to your own company at market value. It cures Section 24 permanently but triggers capital gains tax (unless Section 162 incorporation relief applies, see our incorporation relief guide), stamp duty with the 5% surcharge, and a complete refinance, which is the leg we arrange. For larger portfolios held long-term the maths can clearly justify it; for one or two properties it frequently cannot.
No, and we say so even though we arrange the mortgages either way. The company route costs a rate premium of roughly 0.20 to 0.40%, annual accountancy, dividend tax on extraction, and, for transfers of existing property, the CGT and stamp duty toll at the gate. A basic-rate landlord with modest borrowing may never recover those costs. A 45% taxpayer with six leveraged properties and a fifteen-year horizon almost certainly will.
The honest process is to model it, both structures, full journey, including extraction and eventual sale, with your accountant on the tax and us on the lending. Section 24 changed the default answer for higher-rate landlords; it did not abolish the need to do the sums.
No. Section 24 restricts mortgage interest relief for individuals (and partnerships of individuals) holding residential property. A limited company deducts its mortgage interest in full as a business expense before corporation tax is calculated. This single difference is the main reason company ownership has become the default structure for new purchases by higher-rate taxpayers since the rules took full effect in April 2020.
Section 24 applies when an individual lets residential property and incurs finance costs: mortgage interest, loan arrangement fees and similar. It does not apply to companies, to commercial property, or to properties that qualified under the old furnished holiday lettings regime before its abolition. There is no opt-in or opt-out: if you are a personal-name residential landlord with finance costs, the restriction applies to you automatically through self assessment.
The most frequent error is still deducting mortgage interest as an expense on the self assessment property pages, which understates the tax due and invites an HMRC correction. Others include forgetting that the credit is capped (it cannot exceed 20% of the lower of finance costs, property profits, or adjusted total income), losing track of unused finance costs that carry forward to later years, and overlooking that the grossed-up rental figure can push you over thresholds for the High Income Child Benefit Charge or the personal allowance taper.
The credit is the compensation built into the restriction rather than a relief you choose to claim: every personal-name landlord receives a reduction equal to 20% of their finance costs (subject to the caps). For basic-rate taxpayers whose total income stays below the higher-rate threshold, the credit fully offsets the lost deduction and the net position is unchanged. The benefit landlords actually need to manage is the carry-forward: where the credit is capped in a low-profit year, the unused finance costs roll forward rather than disappearing.
This guide is general information, not tax advice. Thresholds and rates are those in force for 2026 and individual positions vary: speak to your accountant before restructuring.
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