Part of our complete guide to landlord tax.
What Section 24 actually did
Before Section 24, individual landlords deducted mortgage interest from rental income like any other business expense, so a higher-rate taxpayer effectively got 40% or 45% tax relief on their interest costs. Section 24 removed that deduction entirely for individual landlords and replaced it with a flat 20% tax credit instead, applied after your tax liability is calculated, not before.
Verify before relying on this: the 20% basic-rate tax credit mechanics are general knowledge in this article, not freshly re-confirmed against gov.uk at the time of writing. Ask us to check your specific position before relying on a precise figure.
Why it costs more than it looks like
This isn't just a relabelling, it's a real cost increase for anyone above the basic rate:
- Basic-rate taxpayers are broadly unaffected in cash terms, 20% relief either way
- Higher-rate taxpayers (40%) effectively lose half the relief they used to get on their interest
- Additional-rate taxpayers (45%) lose proportionally even more
Use our Section 24 calculator to see the actual cash difference for your mortgage interest and tax band.
The hidden band-shifting effect
There's a second, less obvious consequence. Your rental income is now counted in full for tax band purposes, before mortgage interest is deducted, only the 20% credit arrives afterward. This means your taxable income can look considerably higher than your true economic profit, which can push some landlords into a higher tax band, or cause them to lose personal allowance or child benefit they'd otherwise keep, even though their actual cash profit hasn't changed.
Why some landlords incorporate because of this
Limited companies were never subject to Section 24, they deduct mortgage interest as a normal cost against corporation tax. This is the single biggest reason some landlords consider moving a property portfolio into a company. It's not automatically the right move, there are CGT and Stamp Duty costs to incorporating, and mortgage products for company borrowing differ, but it's worth modelling properly if Section 24 is materially affecting you.
Not sure how much this is costing you? Book a free consultation and we'll work out your actual Section 24 impact, and whether incorporating your portfolio is worth exploring.
Frequently asked questions
What is Section 24?
The tax rule that stopped individual landlords deducting mortgage interest as a business expense, replacing it with a 20% tax credit instead. It applies to individual landlords, not companies.
Why does Section 24 cost higher-rate taxpayers more?
Because the relief is a flat 20% credit regardless of your tax band. A higher-rate landlord who used to deduct interest at 40% or 45% now only gets 20% back, a real loss even though rental profit itself has not changed.
Does Section 24 apply to limited company landlords?
No, companies holding rental property deduct mortgage interest as a normal business expense against corporation tax, which is one reason some landlords consider incorporating a property portfolio.
Can Section 24 push me into a higher tax band?
Yes, because your rental income is now counted before mortgage interest is deducted (only the 20% credit comes after), your taxable income can look higher than your true profit, sometimes pushing landlords into a higher band or losing other allowances.