The tax bill of any residential landlord with a mortgage is affected by Section 24, a provision introduced under the Finance (No. 2) Act 2015. Individual landlords can no longer deduct mortgage interest as a business expense, instead, they receive a 20% basic-rate tax credit. For higher and additional-rate taxpayers, this means rental income is taxed before finance costs are accounted for, often pushing the effective tax rate well above 40%.
This guide explains how the section 24 mortgage interest relief is calculated, who it applies to, who is exempt, and the legitimate ways landlords are reducing its impact.
Key Takeaways
- Section 24 restricts mortgage interest relief for individual landlords to the basic rate (20%), regardless of their actual tax rate, creating a significant annual cost for higher-rate and additional-rate taxpayers
- SPVs (corporate entities) are completely exempt from Section 24 and can deduct 100% of mortgage interest as a business expense, recovering relief at their corporation tax rate (25%)
- A higher-rate taxpayer with £100,000 annual mortgage interest loses £20,000 in annual tax relief under Section 24; an SPV recovers the full £100,000 as a business deduction
- Section 24 exemptions previously existed for furnished holiday lets, but this exemption was abolished on 6 April 2025—FHL properties are now taxed identically to long-term residential lets
- Transferring to an SPV is not a simple decision—it involves upfront costs (legal fees, corporation tax, potential CGT clawback), but the annual relief recovery often justifies restructuring within 3–5 years
What Is Section 24 & Why It Changed Everything
Section 24 tax is not a new tax and isn’t a separate amount added to your tax return; it is a limitation on the amount of mortgage interest that an individual landlord can deduct when calculating their taxable rental profit.
Before 6 April 2017 landlords were allowed to deduct mortgage interest at their full marginal rate. For a taxpayer paying at the higher rate (40%) with £30,000 of mortgage interest the amount by which their taxable rental income was reduced was the full £30,000.
That change was introduced by Section 24 of the Finance (No. 2) Act 2015: instead of being allowed to deduct interest as an expense, individual landlords are now entitled to a basic-rate (20%) tax reduction. In practice:
The amount of mortgage interest is included when calculating the taxable rental profit.
The landlord receives a tax credit equal to 20 per cent of the interest. The impact is roughly neutral for a taxpayer on the basic rate but represents a real and continuing expense for those on the higher rate and additional rate.
The rules are set out in section 272A of ITTOIA 2005 (the restriction) and in section 274A of ITTOIA 2005 (the basic-rate tax reducer). The restriction was introduced in a step-by-step manner: in the 2017/18 tax year the relief was reduced to 75% of the old basis, in 2018/19 it was reduced to 50% and in 2019/20 to 25%, after which, from 2020/21 onwards, mortgage interest is completely disallowed as a deduction and is instead replaced by the 20% credit.
Who Section 24 tax affects (and how it pushes you into a higher band)
Section 24 tax applies to individual landlords who rent out residential property with a mortgage or other type of loan. It hits higher- and additional-rate taxpayers the most. There is also another effect: since mortgage interest is added back to your taxable rental profit, your reported income ends up higher than your actual profit.
This higher reported income can:
move a basic-rate taxpayer into the higher-rate tax band;
reduce or remove your Personal Allowance, which starts to decrease once your income goes over £100,000;
affect the High Income Child Benefit Charge and other thresholds linked to your income.
If your portfolio has a lot of borrowing, you might show a taxable “profit” even if you make little or no real cash profit. This is why Section 24 tax is often called the “landlord tax trap”.
Section 24 tax does not apply to commercial property loans or to companies (see below).
Who Is Exempt from Section 24 Tax & Why It Matters
Corporate landlords (those operating rental properties through SPVs, for instance) are exempt from Section 24 mortgage interest relief restrictions entirely. If the rented property is owned by a company, i.e., not in your personal name, but via a corporate entity, Section 24 does not apply at all. The company can deduct 100% of mortgage interest as a business expense, and the taxable profit is calculated after full relief. Corporation tax is then charged at 25% (current main rate).
Furnished Holiday Lets (Exemption Abolished)
The Furnished Holiday Let (FHL) regime, which previously exempted these properties from Section 24, was abolished on 6 April 2025. FHL owners now lose the full mortgage interest deduction they used to claim and instead receive the same 20% basic-rate credit as any other residential landlord, there is no longer a distinction between an FHL and a standard buy-to-let for this purpose.
Let’s look at how Section 24 affects a typical UK landlord with higher-rate tax status.
Understanding the Financial Impact Through a Real-World Scenario
The Scenario
Sarah pays a higher rate of tax and owns four properties in London. Each one has a £150,000 mortgage at 5% interest, so her total annual mortgage interest is £30,000. After covering running costs but before paying mortgage interest, her rental income is £48,000 a year. If she owns the properties personally, Section 24 means she cannot deduct the interest, so she is taxed on the full £48,000 at 40% (£19,200). She does get a 20% basic-rate credit on the interest (£6,000), which brings her tax bill to £13,200. After paying the mortgage interest, she is left with £4,800 in cash. If she owns the properties through an SPV, she can deduct the £30,000 interest, so only £18,000 is taxable. At 25% corporation tax, that is £4,500, leaving £13,500 in the company after tax and interest. Using an SPV leaves her with £8,700 more each year than owning the properties personally.
Section 24 Calculation
Personal Ownership (Section 24 applies)
| Step | Calculation | Amount |
|---|---|---|
| Taxable rental profit | Interest is not deductible — full £48,000 is taxable | £48,000 |
| Income tax at 40% | £48,000 × 40% | £19,200 |
| Less: basic-rate tax reducer | £30,000 × 20% | −£6,000 |
| Tax due | £13,200 | |
| Cash left after tax and interest paid | £48,000 − £13,200 − £30,000 | £4,800 |
SPV Ownership (Section 24 does not apply)
| Step | Calculation | Amount |
|---|---|---|
| Taxable profit | £48,000 − £30,000 interest (fully deductible) | £18,000 |
| Corporation tax at 25% | £18,000 × 25% | £4,500 |
| Cash left in the company after tax and interest paid | £48,000 − £30,000 − £4,500 | £13,500 |
Comparison: the SPV structure retains £8,700 more per year than personal ownership (£13,500 vs £4,800), before accounting for the cost of extracting profit from the company as salary or dividends, which should be modelled separately.
How to reduce the impact of Section 24 tax
There is no way for an individual landlord to opt out of Section 24 tax, but there are legitimate ways to reduce its effect.
Claim every other allowable cost.
Section 24 only restricts finance costs. Letting agent fees, repairs and maintenance, insurance, ground rents, and other genuinely allowable expenses remain fully deductible and reduce the profit that Section 24 tax is applied to. Making sure these are captured is the simplest first step.
Hold property through a company (SPV)
Because companies are outside the restriction, buying or holding property through an SPV means mortgage interest is deducted in full before Corporation Tax. For higher-geared, higher-rate landlords this can materially reduce the tax cost of Section 24.
The full mechanics are covered in our guide to buying property through an SPV, and SPV mortgages work differently from personal buy-to-let mortgages.
An SPV is not automatically cheaper, and moving existing property into one is a significant decision:
Capital Gains Tax
transferring a personally owned property to a company is normally treated as a disposal at market value, which can trigger a CGT charge. Incorporation relief may be available in some circumstances but is not automatic.
Stamp Duty Land Tax
the company's purchase from you can be within the charge to SDLT (including the higher rates for additional dwellings).
Mortgage terms
corporate mortgages often carry a rate premium and stricter criteria.
Ongoing compliance
a company needs annual accounts, a Corporation Tax return, and potentially MTD reporting, adding to running costs.
Because incorporation involves CGT and SDLT, it should never be undertaken without a property-specialist calculation. Our sister firm, UK Property Accountants, can model whether an SPV is worthwhile for your specific portfolio before you commit.
Conclusion
Section 24 has fundamentally changed the economics of residential property investment. For higher-rate taxpayers, it creates thousands in annual lost relief. However, this is avoidable through SPV restructuring.
An SPV allows you to reclaim full Section 24 mortgage interest relief and significantly reduce your annual tax liability. The average higher-rate landlord with a four-property portfolio now recovers £8,000–£12,000 per year through an SPV structure and with dividend tax rates increasing in April 2026, this advantage is now even more pronounced.
The decision to move to an SPV is not automatic. You must weigh upfront costs (CGT, legal fees, refinancing) against long-term savings. But for most landlords holding property long-term, the SPV structure pays for itself within 12 months and delivers six-figure savings over the holding period.
FAQs
Section 24 ITA 2007 (amended by Finance Act 2017) restricts mortgage interest relief for individual landlords to the basic rate of 20%, regardless of their actual marginal tax rate. It has applied in full to all individual residential landlords since 6 April 2020.
The “trap” is that Section 24 taxes your rental income before you deduct mortgage interest. Since interest is no longer an allowable expense and you only get a 20% tax credit, your taxable profit is higher. This can push you into a higher or additional tax band. If you have a heavily mortgaged portfolio, you might face a tax bill even if you make little or no real profit.
Section 24 only affects individuals, not companies. That’s why many landlords use a limited company or SPV, where mortgage interest is still fully deductible. However, this isn’t always cheaper. Moving property to a company can trigger Capital Gains Tax and Stamp Duty Land Tax, and company mortgage rates may be different. Whether incorporation saves you tax depends on your income, borrowing, and future plans. Always get advice before making changes.
This is the gradual removal of finance-cost relief under s.272A ITTOIA 2005. Relief was reduced to 75% in 2017/18, 50% in 2018/19, and 25% in 2019/20. From 2020/21, you can no longer deduct mortgage interest at all. Instead, landlords get a basic-rate (20%) tax reducer under s.274A ITTOIA 2005.
Section 24 restricts how much of your mortgage interest you can claim as a tax deduction. You can claim only 20% as a tax credit. The remaining 80% stays part of your taxable rental income. For a higher-rate taxpayer with £30,000 mortgage interest, this represents approximately £9,996 in additional annual tax (including National Insurance).
Limited companies and SPVs are not affected by the restriction, as s.272A(5) excludes profits charged to a company. The rule also never applied to commercial property or, in the past, to furnished holiday lets. However, the FHL regime was abolished from April 2025, so that exemption no longer applies to new lets.
Yes, but it’s partial. All individual landlords get 20% basic-rate relief automatically. To get full relief, you need a corporate structure (SPV). Corporate-owned properties receive 100% mortgage interest deduction.
- Failing to claim the 20% relief that IS available#
- Assuming FHL status provides relief (it was abolished on 6 April 2025)
- Not planning for the SPV transition costs before restructuring