Landlord Tax Guide: Understanding Section 24
How Section 24 Tax Affects BTL Landlords
If you’re a UK landlord, understanding Section 24 of the Finance (No. 2) Act 2015 is crucial — especially when it comes to your profits, taxes, and long-term property strategy. Commonly referred to as the “tenant tax”, Section 24 restricts the amount of mortgage interest landlords can offset against their rental income. This means higher tax bills for many buy-to-let investors, particularly those with large portfolios or higher-rate tax status.
At Bright Money Independent, we help landlords navigate these changes — from assessing how Section 24 affects your returns to exploring tax-efficient mortgage options, property ownership structures, and remortgaging strategies that can help mitigate its impact. Understanding how to adapt is key to keeping your buy-to-let portfolio profitable.
What Is Section 24?
Section 24 of the Finance Act 2015 changed how landlords can claim tax relief on mortgage interest. It was fully implemented in April 2020 and affects individual landlords (not companies) who own residential rental properties.
Before Section 24
You could deduct 100% of mortgage interest from rental income before calculating tax.
After Section 24
You can no longer deduct mortgage interest from rental income.
Instead, you receive a 20% tax credit on mortgage interest — regardless of your tax band.
Real-World Example
Let’s say you own a rental property worth £250,000 with:
- Annual rental income: £15,000
- Mortgage balance: £225,000
- Annual mortgage interest: £9,000
- Other expenses: £1,000
Tax Comparison
Scenario | Taxable Profit | Tax Rate | Tax Due | Tax Credit | Final Tax |
Basic Rate (20%) | £14,000 | 20% | £2,800 | £1,800 | £1,000 |
Higher Rate (40%) | £14,000 | 40% | £5,600 | £1,800 | £3,800 |
Key Insight:
- Basic rate taxpayers are unaffected.
- Higher rate taxpayers pay £1,800 more in tax than before Section 24.
Real-World Example
Let’s say you own a rental property worth £250,000 with:
- Annual rental income: £15,000
- Mortgage balance: £225,000
- Annual mortgage interest: £9,000
- Other expenses: £1,000
Tax Comparison:
Basic Rate (20%)…
Taxable Profit = £14,000
Tax Rate = 20%
Tax Due = £2,800
Tax Credit = £1,800
Final Tax = £1,000
Higher Rate (40%)…
Taxable Profit = £14,000
Tax Rate = 40%
Tax Due = £5,600
Tax Credit = £1,800
Final Tax = £3,800
Key Insight:
- Basic rate taxpayers are unaffected.
- Higher rate taxpayers pay £1,800 more in tax than before Section 24.
How to mitigate Section 24 Impact
1. Buy Through a Limited Company
Limited companies are not affected by Section 24 — they can deduct mortgage interest as a business expense.
Example: Same Property via Ltd Company
- Taxable profit: £5,000
- Corporation tax (19%): £950
- Savings vs. individual (higher rate): £2,850
Considerations
Factor | Cost |
Stamp Duty (with 3% surcharge) | £10,000 |
Legal fees (purchase via Ltd) | £1,000–£1,500 |
Company setup | £12–£100 |
Transfer of equity (if applicable) | £150–£350 + VAT |
Accountant fees | Varies |
2. Joint Borrower Sole Proprietor (JBSP)
A mortgage structure where both parties are on the mortgage, but only one is on the property deeds.
Benefits
- Allows one person to own each property individually.
- Can reduce stamp duty if structured correctly.
- Useful if one party is a basic rate taxpayer (e.g., spouse).
Example
- Onward purchase: £570,000
- Mortgage: £370,500
- Stamp duty as second home: £47,000
- Stamp duty with JBSP: £18,500
- Savings: £28,500
- Legal advice required for non-owner borrower: £500–£750
3. Transfer Ownership to Basic Rate Taxpayer
- May reduce tax on rental profits.
- Requires legal and tax advice.
- Could trigger Capital Gains Tax or Stamp Duty.
4. Green EPC Mortgage Products
- Properties with EPC rating B or above may qualify for lower mortgage rates.
- Your expired EPC should be renewed to access these products.
Summary
What to Consider on Section 24 Tax
Option | Tax Relief | Stamp Duty | Legal Complexity | Best For |
Individual Ownership | Limited (20% credit) | Standard | Low | Basic rate taxpayers |
Ltd Company | Full relief | +3% surcharge | Moderate | Portfolio landlords, higher rate taxpayers |
JBSP | Depends on structure | Potential savings | Requires legal advice | Couples with mixed tax bands |
Final Thoughts
Section 24 has reshaped the landscape for landlords. Whether you’re planning a new purchase or restructuring existing assets, understanding your options is key to protecting your profits.
Always seek specialist tax and legal advice before making changes.
If you’d like help structuring your mortgage to suit your tax position, I’m here to guide you through every step.
🏠 Individual Ownership
Tax Relief: Limited (20% credit)
Stamp Duty: Standard
Legal Complexity: Low
Best For: Basic rate taxpayers
🏢 Ltd Company
Tax Relief: Full relief
Stamp Duty: +3% surcharge
Legal Complexity: Moderate
Best For: Portfolio landlords, higher rate taxpayers
👥 JBSP (Joint Borrower, Sole Proprietor)
Tax Relief: Depends on structure
Stamp Duty: Potential savings
Legal Complexity: Requires legal advice
Best For: Couples with mixed tax bands
Final Thoughts
Section 24 has reshaped the landscape for landlords. Whether you’re planning a new purchase or restructuring existing assets, understanding your options is key to protecting your profits.
Always seek specialist tax and legal advice before making changes.
If you’d like help structuring your mortgage to suit your tax position, I’m here to guide you through every step.
FAQ
about
Section 24
Tax
What is Section 24 tax for landlords?
Section 24 is a UK tax change that restricts how much mortgage interest landlords can deduct from their rental income. Instead of claiming full interest as an expense, landlords now receive only a basic-rate (20%) tax credit.
When did Section 24 come into effect?
Section 24 was phased in between 2017 and 2020. From April 2020 onwards, all individual landlords have been fully subject to the restriction.
Who is affected by Section 24?
Section 24 affects individual landlords who own property in their personal name. It does not apply to properties owned through a limited company.
How does Section 24 affect my rental profits?
Under Section 24, your taxable profit appears higher because you can no longer deduct full mortgage interest. This can push some landlords into a higher tax band — even if their real income hasn’t changed.
Can landlords still claim any mortgage interest relief?
Yes — but only as a 20% tax credit. Higher-rate and additional-rate taxpayers no longer receive full relief on their mortgage interest.
How can BMI Money help landlords affected by Section 24?
BMI Money’s specialist mortgage advisers help landlords explore restructuring options — such as remortgaging into a limited company, consolidating debt, or switching to more tax-efficient lending products.
What are the benefits of using a limited company to avoid Section 24?
Limited companies can still deduct all mortgage interest before tax, making them more efficient for higher-rate taxpayers. BMI Money can assess whether transferring your properties is worthwhile.
Is transferring my buy-to-let to a limited company right for me?
It depends on your long-term goals, tax band, and portfolio size. BMI Money works alongside accountants to help landlords compare costs, stamp duty, and capital gains implications.
Does Section 24 apply to holiday lets or HMOs?
Section 24 applies to standard residential lets, but not to furnished holiday lets that meet HMRC’s qualifying criteria. HMOs owned personally are affected in the same way as single lets.
Can I reduce the impact of Section 24 without setting up a company?
You may be able to reduce the effect by increasing allowable expenses, overpaying mortgages, or switching to lower-rate products. BMI Money can advise on suitable mortgage options.
Do first-time landlords need to worry about Section 24?
Yes — if you plan to buy in your own name, Section 24 will limit your tax relief. BMI Money can help you decide whether to buy as an individual or through a company from the outset.
Will Section 24 affect my ability to borrow more?
Potentially. Lenders assess affordability based on post-tax profits. BMI Money helps landlords identify lenders that take a flexible approach to rental stress testing.
Can I still get buy-to-let mortgages in a limited company name?
Absolutely. BMI Money works with lenders who specialise in limited company buy-to-let mortgages, often with competitive rates and simpler underwriting for experienced landlords.
What happens if I ignore Section 24?
You may underpay tax if you continue claiming full mortgage interest as an expense. It’s essential to update your tax return — or speak to BMI Money and a qualified accountant for guidance.
Where can I get advice about Section 24 and my property portfolio?
For tailored mortgage and financing advice, contact Bright Money Independent (BMI Money). Our expert team helps landlords navigate Section 24, optimise their borrowing, and plan for long-term tax efficiency.
