Understand how the Section 24 tax changes impact UK property investments. Learn to model mortgage interest relief and compare personal vs company yields.

Section 24 Tax Guide: UK Buy-to-Let Mortgage Relief

Understand how the Section 24 tax changes impact UK property investments. Learn to model mortgage interest relief and compare personal vs company yields.

Section 24 (section 24 of the Finance (No. 2) Act 2015) changed how individual UK landlords get relief on finance costs for residential let properties. In plain language: most people can no longer deduct mortgage interest from rental profits before income tax in the old way. Instead they receive a basic rate (20%) tax credit on finance costs, subject to rules and caps. Official detail sits in GOV.UK: restricting finance cost relief for individual landlords and how the relief is worked out (including case studies); your tax adviser and Self Assessment are the sources of truth for your return. This article explains the investment modelling angle so you underwrite deals with your eyes open.

What is Section 24?

Before the change, many landlords deducted mortgage interest (and certain other finance costs) from rental income when working out taxable profit. Section 24 restricts that for individual landlords of UK residential property. Finance costs are still recognised for tax, but through a tax reducer (the 20% credit) rather than a straight deduction from rental income in the calculation you may remember from older spreadsheets.

People still search for “what is section 24” and “section 24 tax” because the mechanics are easy to misunderstand, especially if you are comparing gross rent to mortgage payments and forgetting tax bands and paper income.

When did Section 24 fully apply?

Relief was phased in from April 2017; from April 2020 the restriction has applied in full for affected landlords in the usual reporting cycle. If you see old blog posts dated 2018 or 2019, check whether they describe a transition year rather than today’s rules.

How does the 20% tax credit work (high level)?

You still report rental income and allowable expenses under normal property income rules. Finance costs are treated under the Section 24 rules: instead of deducting all interest like a classic “expense line”, you typically calculate tax on your rental income and then apply a tax reducer equal to 20% of your finance costs, subject to conditions (for example, it cannot usually create a repayment of tax and may be unused in some loss situations). The exact computation belongs on your Self Assessment or adviser’s worksheet.

Why investors care in underwriting: your cash might still leave your account every month for interest, but your taxable profit can look larger than your economic feel for the deal. That pushes some landlords into higher marginal rates or triggers cliff-edge effects (for example, interactions with personal allowance taper or High Income Child Benefit charge thresholds) because adjusted net income can rise on paper even when cash is tight. None of that is unique to Bricks & Yield; it is a reason to model after-tax cash with a qualified professional, not only gross yield.

Does Section 24 apply to limited companies?

Broadly, no in the same way for a UK-resident company letting property: companies are generally taxed under corporation tax rules and interest is typically dealt with under loan relationship rules, not the individual landlord Section 24 restriction. Many investors therefore compare personal name vs limited company purchases; stamp duty, mortgage products, extraction of profits, and admin all change. Structuring is not something to guess from a blog; use an accountant.

Is Section 24 the same as “Section 24 tenant tax”?

Campaigners and headlines sometimes call it the “tenant tax”. Economically, who bears the cost depends on market power, rent levels, and portfolio strategy; politically, the label is contested. For your modelling, separate three things:

Legal tax rule (Section 24 and finance cost relief).
Cash flow (rent, mortgage, repairs, voids, management).
Your marginal tax rate and other income.

That separation is what lets you compare two deals fairly instead of arguing slogans.

Section 24 buy-to-let calculator and worked example (illustrative only)

Not tax advice. Suppose (rounded, simplified):

Annual gross rent £18,000.
Allowable non-finance costs £4,000 (repairs, insurance, agent fees: illustrative).
Mortgage interest £6,000.

Under a pre-Section 24 intuition, some people still think: “profit ≈ 18 − 4 − 6 = £8,000”. Under current rules the taxable picture follows the steps in GOV.UK’s worked examples; the 20% credit on £6,000 interest is £1,200 of tax reducer, not “£6,000 off the top line” in the old sense. A higher-rate taxpayer can still feel a sharp increase versus the old world because marginal tax on inflated taxable income outweighs the 20% credit.

Use a proper tax calculator or adviser for filing. For offer-stage screening, the lesson is: stress rent, voids, rates, and tax together before you bid. Our Learn guide on Section 24 and cash flow ties tax concepts back to modelling discipline.

Frequently asked questions

Does Section 24 mean I cannot offset mortgage interest at all?

You do not usually get the old full deduction against income in the way many landlords remember. You may get a 20% tax credit on finance costs within the rules. Verify on GOV.UK: restricting finance cost relief, how it is worked out, and working out rental income for your situation.

Did Section 24 create a “tax loophole” with companies?

Some investors use companies for new purchases because of how interest and profits are taxed in that wrapper. Whether that net helps you depends on mortgage pricing, future extraction, and CGT on sale. It is not a universal loophole; it is structuring.

Where does HMRC publish the rules?

Use primary sources in this order: legislation.gov.uk: Finance (No. 2) Act 2015, section 24; GOV.UK publication: restricting finance cost relief for individual landlords; GOV.UK guidance: how it is worked out (case studies). HMRC’s internal Property Income Manual (search within it for finance costs) supports technical detail. When in doubt, note the date on the GOV.UK page you relied on.

How should I model this in Bricks & Yield?

Use the app to keep rent, costs, refinance, and exit consistent across a deal, then take tax outputs from your accountant or your own approved tax model. Software should reduce spreadsheet risk; it does not replace regulated advice.

Official sources (UK)

Bricks & Yield is not affiliated with HMRC or The National Archives; links are for reader research only.

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