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Section 24 explained for UK landlords

Section 24 of the Finance Act 2015 restricted mortgage interest relief for residential UK landlords to a 20% basic-rate tax credit. Here's what that actually means for your tax bill, who it hits hardest, and the SPV question.

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The short answer

Before Section 24, residential landlords deducted mortgage interest from rental income as an expense, then paid tax on the profit. Section 24 removed that. Since April 2020, mortgage interest is restricted to a 20% basic-rate tax credit.

The effect: higher-rate (40%) and additional-rate (45%) taxpayer landlords saw their effective tax on rental profit increase substantially. Many basic-rate (20%) landlords pay roughly the same as before. Companies (including SPVs) are unaffected — they still deduct interest fully under Corporation Tax.

This article explains the mechanism in plain English. It is not personalised tax advice. Your specific position depends on your income, your portfolio, your loan structures, and your wider tax picture — talk to your accountant before making restructure decisions.

The mechanism

How Section 24 actually works

Before April 2017: full deduction of mortgage interest from rental income. £25,000 rent − £15,000 interest = £10,000 profit, taxed at your marginal rate.

April 2017 to April 2020: phased restriction. The deductible portion shrank by 25% each year, replaced by a basic-rate credit.

April 2020 onwards: no deduction of mortgage interest at all. £25,000 rent is taxable in full (less other expenses). You then receive a tax credit equal to 20% of the mortgage interest against the resulting tax bill.

For a higher-rate (40%) taxpayer landlord with £25,000 rent and £15,000 interest, the practical effect: instead of paying 40% on £10,000 profit (£4,000), you pay 40% on £25,000 (£10,000), then deduct a 20% credit on £15,000 (£3,000). Total tax: £7,000— almost double what it was before Section 24.

For a basic-rate (20%) taxpayer landlord with the same numbers, the practical effect: 20% on £25,000 (£5,000) minus 20% credit on £15,000 (£3,000) = £2,000. Same as the pre-2017 calculation of 20% on £10,000 profit. Basic-rate landlords are roughly neutral.

Who it hits

Three landlord types, three different impacts

Basic-rate (20%) landlord

Roughly neutral. The 20% credit equals the deduction you used to get. Most small portfolios with day-job income under ~£45,000 fall here.

Higher-rate (40%) landlord

Materially worse. Effective tax on rental profit roughly doubles in heavily-leveraged portfolios. This is the cohort that’s either selling, switching to limited-company structure, or reducing leverage.

Additional-rate (45%) landlord

Worst hit. A 25-point gap between the marginal income tax rate and the 20% credit. Larger portfolios are almost universally now SPV-structured for new acquisitions.

The SPV question

Should you incorporate?

Section 24 is the main reason for the post-2017 surge in property SPVs (Special Purpose Vehicles — limited companies holding rental property). Companies are unaffected by Section 24; they deduct mortgage interest as a normal business expense under Corporation Tax.

But incorporation isn’t free. Transferring existing properties from your name to a company is a sale, with Capital Gains Tax on accrued gains, Stamp Duty (SDLT) at second-property rates, and re-mortgaging costs because lenders charge more for SPV mortgages. For some landlords, incorporation relief (s162) can defer the CGT — but that’s a strict test most small portfolios don’t pass.

The general rule of thumb in the profession: incorporation usually favours higher-rate landlords with leveraged portfolios who are buying new properties. Holding existing properties through incorporation rarely pays off unless the portfolio is substantial. Always model it with an accountant before deciding.

Section 24 + MTD

How Section 24 records into MTD quarterly summaries

Under MTD for Income Tax, mortgage interest gets a specific treatment: it’s recorded as an expense for record-keeping purposes, but in the quarterly summary it’s flagged as restricted finance costs. Your accountant or MTD-compatible filing software applies the 20% credit at the final declaration stage, not in the quarterly summary itself.

Practically, this means landlord record-keeping software should track mortgage interest separately from other expenses so the quarterly summary and the year-end credit calculation both come out right. LandlordFlow does this by default.

Common questions

Questions, answered

Has Section 24 been repealed or amended?+
No. Despite repeated landlord-body lobbying, Section 24 (the Finance Act 2015 mortgage-interest restriction) remains in force for individual landlords. The 20% basic-rate tax credit is the full and only relief available since April 2020.
Does Section 24 apply to limited companies?+
No. Section 24 only restricts mortgage interest for residential landlords holding property in their own name. Companies (including SPVs) deduct mortgage interest as a business expense in the normal way under Corporation Tax. This is the single biggest reason for the post-2015 surge in SPV property structures.
Does Section 24 apply to furnished holiday lets?+
Historically no — FHLs sat outside Section 24. From April 2025, the government has abolished the FHL tax regime, bringing FHLs into the standard residential property tax rules — which means Section 24 now applies to them too. This is a significant change worth discussing with your accountant if you let an FHL.
Does Section 24 affect commercial property?+
No. Commercial-let mortgage interest remains fully deductible. Section 24 is residential-only.
Should I incorporate to escape Section 24?+
Maybe — but the analysis is complex. Incorporation has CGT and SDLT consequences (you’re selling the property to the company), and the company structure brings its own admin and tax bills. For most landlords, the maths favours incorporation past a certain portfolio size with leveraged properties — but get a proper analysis from an accountant before deciding. This is not the kind of decision to make based on a website article.

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