Section 24

Section 24
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The government introduced Section 24 of the finance act (2015) in April 2017. The changes were introduced gradually but came into full effect in April 2020. In this post we explain how it affects landlords income and what they can do to off-set the impact.

What is Section 24?

Section 24, in simple terms, removes a landlord’s right to deduct mortgage interest and other finance costs (mortgage arrangement fees for example) from their rental income before calculating their tax liability. Previously, landlords could offset 75% of their mortgage interest vs rental income. From April 2020 landlords will not be able to offset any costs against rental income and instead be able to claim a 20% tax credit.

How does section 24 work?

Under the new Section 23 legislation, you’ll need to pay income tax on all earnings from your property. You can then claim relief but only up to a maximum of 20%. For example:

  • You have rental income of £15,000 pa
  • Your mortgage interest is £5,000

Under the new legislation, you will pay tax on the full rental income of £15,000. This is then £3,000 for basic rate taxpayers (20%) and £6,000 for higher rate tax payers (40%). You can then claim back 20% of your interest payments which is £1,000 (20% of £5,000).

In total, a basic rate taxpayer would pay £2,000 and a higher rate taxpayer would pay £5,000.

What does this mean for landlords income?

The effect of Section 24 will depend on your income tax band. For lower earners, the impact will be minimal but for landlords with larger portfolios, the impact could be significant.

You’ll also need to keep in mind other expenses can no longer be deducted so you’ll have to pay tax on any mortgage admin fees.

Does Section 24 affect Limited Companies?

UK private limited companies holding residential property can still claim finance costs as an allowable expense. Limited Liability Partnerships (LLPs), Partnerships and Sole traders are still impacted by the new section 24 tax changes.  This is unless you have Hybrid Business Structure or Mixed Partnership LLP which can enable property owners to maximise the commercial benefits of buildings and growing a property business. This commonly used structure utilised a Limited Liability Partnership connected to a Limited Company, click here to find out more about a Hybrid Business structure.

Will Section 24 ever be repealed?

There is still a possibility and some strongly believe it is quite likely with several examples in other countries where similar legislation has been repealed. For example, Ireland implemented similar measures in 2009,  but began a process of extending relief again to landlords from 2017 onwards. In Ireland, the amount of interest you can deduct on a residential mortgage has now increased back to 100%.

You can learn more from the LT4L Co-Founder Chris Bailey in his interview with property tribes:

What is Section 24? Common questions about Mortgage Interest Tax Relief Restrictions

How can landlords off-set and manage Section 24?

Section 24 is impossible to avoid and unfortunately, all landlords will have to face the effects. However, there are ways to mitigate the impact. For example:

  1. Set up a Beneficial Interest Company Trust – This will involve transferring interest but does not require re-mortgage which can be problematic. It will also involve switching from income to corporation tax and you will most likely incur professional fees which may make this prohibitive.


  1. Become a limited company – This is landlords most common response to how they will mitigate section 24, but you should take time to consider all your options. Transferring your portfolio to a limited company is likely to incur stamp duty and capital gains tax as well as having to re-mortgage and incur the fees that come along with that (check if you will have to pay early repayment penalties).


  1. Divide profits or transfer ownership – If you have a partner or spouse who is unemployed or is in a lower tax bracket, bringing them into the business could be beneficial and reduce your total tax bill.


  1. Move towards a commercial portfolio – Diversifying your portfolio and taking on more commercial opportunities is always a good way to avoid section 24.


  1. Re-mortgage – Depending on your current mortgage rates you could utilise historically low interest rates. This would lower monthly repayments and will offset any increased tax burden.


  1. Increase rent – This can be an easy way to offset any increase in costs but make sure it doesn’t push you into a higher tax bracket.