## Understanding Section 24 Buy-to-Let Tax Changes
Section 24 of the Finance (No. 2) Act 2015 significantly altered how individual landlords in the UK can claim tax relief on finance costs associated with their buy-to-let properties. This change was phased in from April 2017 and fully applied from April 2020.
### How Finance Costs Are Now Treated
Instead of deducting finance costs directly from rental income, landlords now receive a tax credit equivalent to 20% of their finance costs. The tax reduction is calculated based on the basic-rate value of the lower amount between your total finance costs, your property business profits, and your adjusted total income above your personal allowance.
### Reporting Rental Income
Your property allowance permits the first £1,000 of your income from property rental to be tax-free. You are required to report your property income on a Self Assessment tax return if it is more than £2,500 after allowable expenses, or more than £10,000 before allowable expenses. For more details on calculating your rental income, you can refer to [HMRC’s guidance on working out rental income](https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income).
### Future Tax Rate Changes
From April 2027, separate property income tax rates are planned, with a basic rate of 22%, a higher rate of 42%, and an additional rate of 47%. In line with these planned changes, finance cost relief is anticipated to be set at the separate 22% property basic rate. The method for individuals to report and pay tax on property income is not expected to change, but the rates applied will differ. More information on these proposed changes can be found on [HMRC’s guidance on tax rate changes](https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies).
### Worked Example - Property Deal Due Diligence
When considering a new buy-to-let purchase, thorough due diligence is essential, especially in light of tax changes. For example, a deal might undergo 20 checks. If 15 are green (satisfactory), 3 are amber (require attention or adjustment), and 2 are red flags (critical issues), the recommended action is to pause the purchase until the 2 red flags are resolved. The 3 amber items should be addressed through conditions for purchase or price negotiations, rather than assumed in your financial model. This structured approach, supported by tools like the [Bricks & Yield Due Diligence Checklist](/tools/due-diligence-checklist), helps mitigate risks before completing a purchase.