Section 24 explained: how the tax rules hit landlords
Section 24 is the quiet reason a rental that "cashflows" can still lose money after tax. It changed how mortgage interest is treated for individual landlords, and for higher-rate taxpayers it can turn a modest profit into a loss. If you own property in your own name — or are deciding whether to — this is the rule to understand before you run any numbers.
What Section 24 actually changed
Before the rules were phased in (fully in place since the 2020/21 tax year), a landlord subtracted mortgage interest from rental income and paid tax on what was left. Section 24 stopped that for individuals. Now:
For a basic-rate taxpayer that's roughly a wash — 20% relief is about what they'd have got anyway. For a higher-rate taxpayer it isn't, because they used to get relief at 40%, and now only get 20%. The other half lands on them as extra tax.
A worked example
Take a property earning £12,000 a year in rent, with £6,000 of mortgage interest and £2,000 of other allowable costs (management, insurance, maintenance).
| Basic rate (20%) | Higher rate (40%) | |
|---|---|---|
| Rent | £12,000 | £12,000 |
| Less other costs | −£2,000 | −£2,000 |
| Taxable profit (interest not deducted) | £10,000 | £10,000 |
| Tax before credit | £2,000 | £4,000 |
| Less 20% interest credit | −£1,200 | −£1,200 |
| Tax due | £800 | £2,800 |
Actual pre-tax cashflow is the same for both (£12,000 − £2,000 − £6,000 = £4,000). But the higher-rate landlord pays £2,800 in tax on it, leaving £1,200. The basic-rate landlord keeps £3,200. Same property, same rent — very different outcome, entirely because of how the interest is treated.
Why so many landlords moved to a limited company
Section 24 does not apply to companies. A limited company (usually a special-purpose vehicle, or SPV) deducts mortgage interest as a normal business expense and pays corporation tax on the profit that's left. For a higher-rate taxpayer building a portfolio, that difference compounds year after year.
It isn't a free win, though. A company brings its own costs and friction:
- BTL company mortgages usually carry higher rates and fees.
- Getting money out as dividends is taxed again on the way to your pocket.
- Accountancy and filing costs are ongoing.
- Moving existing personal properties into a company can trigger stamp duty and capital gains tax.
For a single property it often isn't worth it; for a growing higher-rate portfolio it frequently is. This is a decision to model with an accountant, not a rule of thumb.
How to factor it into a deal
Screen every rental on after-tax cashflow, not the gross yield on the advert. Two levers matter most: your marginal tax band, and whether you're buying personally or through a company. The StackCheck analyser applies a simplified Section 24 calculation for personal ownership (taxing rent less costs at your band, then applying the 20% interest credit) and a corporation-tax calculation for companies, so you can see both side by side before you commit.
See a deal's after-tax cashflow — personal higher-rate vs limited company — in seconds.
Run your numbers free →This is general information, not tax advice, and it simplifies a complex area (it ignores allowances, other income interactions and dividend extraction). Tax rules change at Budgets. Always take advice from a qualified accountant before buying or restructuring.