Section 24 Tax Impact on Buy to Let UK Explained

What Is Section 24 and What Actually Changed?

Section 24 of the Finance (No. 2) Act 2015 introduced a restriction on the amount of mortgage interest and other finance costs that individual landlords can deduct when calculating their taxable rental profit. Historically, if you were a private landlord, you could treat mortgage interest as a business expense. You would take your rental income, subtract your mortgage interest and other allowable costs, and pay income tax only on what remained. This was straightforward and meant that highly geared portfolios could still be tax-efficient. Section 24 changed the mechanism entirely. Instead of deducting mortgage interest from rental income, landlords now receive a tax credit based on their finance costs, applied at the basic rate of income tax. In practice this means your taxable rental income is calculated on the gross rent with mortgage interest no longer fully deductible, and then you receive a credit to offset some of the tax. The change was phased in gradually over several tax years rather than introduced overnight, and it is now fully in effect. The most important consequence is that your rental income can push you into a higher tax band, even if your actual cash profit hasn't changed. For basic rate taxpayers the impact tends to be more limited, but for higher and additional rate taxpayers the effect can be substantial. Some landlords have found that a property which appeared modestly profitable on paper actually generates little net return once Section 24 is applied. It is worth stressing that this legislation applies to individuals holding property in their own name. Properties held through a limited company are taxed differently and are not subject to Section 24 in the same way, which is one reason many investors now consider corporate structures. When you assess a listing with DealFlow AI, remember that the yield estimates give you a starting point on gross performance, and your personal tax position determines what that translates to in real terms.

How Section 24 Affects Your Real Buy to Let Profit

The practical impact of Section 24 depends heavily on your income tax band, how much you have borrowed, and the rental income the property generates. For a landlord who is a basic rate taxpayer with little other income, the changes may make relatively little difference to the final tax bill because the tax credit broadly aligns with the rate at which relief was previously given. The real squeeze falls on higher and additional rate taxpayers, and importantly, on landlords whose rental income tips them over a tax threshold they would otherwise sit below. Because your gross rent now counts towards your taxable income before the interest credit is applied, a landlord who was previously a basic rate taxpayer might find themselves paying higher rate tax on a portion of their income. This is why Section 24 is sometimes described as taxing turnover rather than profit. Consider a leveraged property where a large share of the rent goes straight out again as mortgage interest. Under the old rules, tax was only due on the slim margin left after that interest. Under Section 24, tax is effectively calculated on a much larger figure, softened only by the basic rate credit. The more you have borrowed relative to your rental income, the more pronounced this effect tends to be. This directly affects the classic benchmarks investors use, such as aiming for a gross yield of around 6% or higher. A property hitting that gross yield may still deliver disappointing net returns for a higher rate taxpayer once mortgage interest and Section 24 are factored in. This is precisely why DealFlow AI encourages you to look past the headline yield. When you run a Rightmove or Zoopla listing through DealFlow AI, the deal score and yield estimate help you compare properties on a like-for-like gross basis, but you should always layer your own tax position on top. Direction matters more than false precision here: if you are heavily geared and a higher rate taxpayer, expect Section 24 to eat meaningfully into your returns, and budget accordingly rather than relying on optimistic gross figures.

Strategies Landlords Use to Manage Section 24

There is no single fix for Section 24, and the right approach depends entirely on your personal circumstances, so professional tax advice is strongly recommended before making structural decisions. That said, understanding the common strategies landlords consider will help you have a more informed conversation with an accountant. The most widely discussed option is holding property through a limited company. Because Section 24 applies to individuals rather than companies, corporate landlords can still typically deduct mortgage interest as a business expense before calculating corporation tax. However, this route brings its own considerations, including different mortgage products, potential higher interest rates on company lending, the cost of extracting profits as dividends, and possible stamp duty and capital gains implications when transferring existing personally-held property into a company. It is rarely a simple win and depends on your goals and timeframe. Some landlords focus on reducing gearing, either by putting down larger deposits or paying down mortgages, which lessens the interest that falls foul of Section 24. Others prioritise higher-yielding properties so that a stronger income cushion can absorb the tax impact, though higher yields often come with their own risks and management demands. Spousal ownership arrangements are another area landlords explore, where property income is allocated in a way that makes use of a lower-earning partner's tax band, subject to the rules around beneficial ownership. Reviewing all allowable expenses carefully also remains important, since legitimate costs other than finance charges can still be deducted in the normal way. The key takeaway is that Section 24 rewards deliberate planning over guesswork. Before committing to a purchase, model the deal properly. DealFlow AI helps at the sourcing stage by letting you quickly analyse listings, estimate rental yields, and get an investment verdict so you can shortlist properties worth deeper analysis. You can save promising properties to your watchlist and receive price-drop alerts if the asking price changes, which is useful when you are weighing whether a deal stacks up after tax. Combine that analysis with proper advice on your structure, and you can make decisions that account for Section 24 rather than being caught out by it.

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