Section 24 is the single change that has done the most to reshape buy-to-let ownership in the UK. Most landlords know the name and know it is bad news. Fewer understand exactly how it works, why it hits some portfolios far harder than others, and what the actual options are. This is the plain version.
What Section 24 actually changed
Before April 2017, individual landlords deducted mortgage interest and other finance costs from rental income before working out taxable profit — the same way any other business expense works. Section 24 of the Finance (No. 2) Act 2015 phased that out for individuals and partnerships. Finance costs are no longer deducted from income. Instead, you get a basic-rate (20%) tax reduction on those costs, applied after your tax liability is calculated.
The distinction sounds technical. In practice it means your taxable profit is now calculated on rental income minus everything except finance costs — a much larger number than your actual cash profit if you have a mortgage.
Why it hits some landlords far harder than others
The effect scales with two things: how geared the portfolio is, and what tax band the extra taxable profit pushes you into.
- Basic-rate taxpayers are broadly unaffected in isolated cases — the 20% relief matches the 20% they would have saved by deducting the cost. The real damage is being pushed into a higher band by the inflated taxable profit.
- Higher-rate (40%) and additional-rate (45%) taxpayers lose the difference between their marginal rate and the 20% relief on every pound of finance cost. On a highly geared portfolio this is not a rounding error — it can be the difference between a profitable portfolio and one that is taxed on income that was never actually kept.
- Landlords near the Personal Allowance taper or Child Benefit charge thresholds can be pulled over them by the inflated taxable profit even if their real cash profit has not changed at all.
This is why two landlords with identical cash profit can have completely different tax bills — the one with more debt relative to rental income pays more, sometimes a lot more.
A simplified example
Take a landlord with £24,000 rental income, £10,000 mortgage interest and £4,000 other allowable costs. Real cash profit before tax: £10,000.
Under the old rules, taxable profit was also roughly £10,000. Under Section 24, taxable profit is £24,000 minus £4,000 = £20,000 — double the real profit — with a 20% credit (£2,000) applied against the tax bill afterwards. If that £20,000 pushes the landlord into the higher-rate band alongside other income, the tax due can exceed what would have been owed on the real £10,000 profit by a wide margin. In the worst geared cases, the tax bill can approach or exceed the actual cash profit.
Why companies are different
Section 24 applies to individuals and partnerships. It does not apply to limited companies. A company holding rental property deducts mortgage interest as a normal expense before Corporation Tax, the same way it always could. This is the entire reason “should I incorporate my portfolio?” has become such a common question since 2017.
It is not, however, an automatic answer. See our guide on buying property through a limited company for the fuller trade-off — Corporation Tax rates, extraction costs, and mortgage availability all cut the other way to varying degrees.
Moving existing property into a company is not simple
The obvious question is: if companies avoid Section 24, why not just move existing rental property into one? Because the transfer is normally treated as a disposal by the individual and an acquisition by the company — triggering Capital Gains Tax on the individual and SDLT (at company/additional-property rates) on the company, even though no cash actually changes hands in the way a sale implies.
There are reliefs — most notably incorporation relief for a genuine property rental business run as a partnership, which can defer some or all of the CGT — but the qualifying conditions are specific and HMRC scrutinises claims that look like a portfolio of let properties dressed up as a partnership business. This needs proper modelling before you act, not a rule of thumb from a forum post.
What is actually worth modelling
- The real cash impact — not the headline tax rate, but what Section 24 costs you in this tax year on your actual gearing.
- Incorporation of new purchases — often the lowest-friction option, since there is no disposal to trigger CGT on a property you do not yet own.
- Incorporation of an existing portfolio — only where the numbers, the gain history and the qualifying conditions genuinely support it.
- Reducing gearing — sometimes overlooked, but paying down debt reduces the Section 24 exposure directly, and the maths on this is worth running alongside the incorporation question rather than instead of it.
- Spousal transfers and allowance use — splitting ownership to use both partners’ basic-rate bands and allowances can meaningfully soften the impact without restructuring anything.
None of these are universally right. All of them depend on your specific gearing, gain position and time horizon — which is exactly the kind of decision that rewards proper investor tax advice rather than a generic answer.
Common questions
What is Section 24 for landlords?
Section 24 of the Finance (No. 2) Act 2015 stops individual landlords deducting mortgage interest and other finance costs as an expense against rental income. Instead, they get a basic-rate (20%) tax reduction on those costs. It applies to individuals and partnerships, not to companies.
Who is worst affected by Section 24?
Higher and additional-rate taxpayers with significant mortgage debt relative to rental income are hit hardest. Because finance costs no longer reduce taxable profit, a highly geared portfolio can show a large taxable profit — and push the owner into a higher tax band or lose Personal Allowance — even when very little cash was actually kept.
Does Section 24 apply to limited companies?
No. Companies deduct mortgage interest as a normal business expense before Corporation Tax. This is the main reason incorporation is raised so often in the Section 24 conversation — but moving existing property into a company usually triggers a Capital Gains Tax and SDLT charge, so it needs modelling, not assuming.
Should I move my rental properties into a limited company?
Sometimes, but not automatically. Incorporation avoids the Section 24 restriction going forward, but the transfer itself is normally a disposal for CGT and an acquisition for SDLT (though reliefs exist for genuine property partnerships). Whether it pays off depends on gearing, gain history, mortgage terms, and how long you plan to hold. It is a modelling exercise, not a rule of thumb.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.