Section 24 and Mortgage Interest: Strategies Landlords Can Still Use Leg

Section 24 changed how you claim mortgage interest on rental property. You can no longer deduct interest from rental income before tax. You can still reduce the tax impact legally by using the 20% tax credit, planning your ownership structure, and managing expenses with care.

This rule often increases taxable profit, even when your real cash profit stays the same. That shift affects higher‑rate taxpayers the most and can change how viable a property feels. Knowing where the pressure comes from helps you make better decisions before profits shrink.

You still have options within the rules. Smart tax planning, clear record keeping, and the right structure can protect cash flow and long‑term returns. Understanding how the wider market and personal advice fit in can also shape your next move.

Section 24 and the Restriction of Mortgage Interest Relief

Section 24 changed how you report mortgage interest on rental property. It affects how you calculate taxable income, apply tax credits, and plan cash flow. The rules apply even if your rental profit stays the same.

How Section 24 Changed Mortgage Interest Relief Rules

Before Section 24, you could deduct 100% of mortgage interest from rental income before tax. The Finance Act 2015 removed this rule for individual landlords.

Now, you must report gross rental income and calculate tax without deducting mortgage interest. You then claim relief as a tax credit instead.

This change fully took effect in April 2020. The restriction applies to most finance costs, not just loan interest.

Examples of restricted costs include:

• Mortgage interest
• Arrangement and broker fees
• Interest on loans used to buy or improve property

These Section 24 restrictions increase reported profits, even if your real profit does not change.

Impact on Rental Income and Taxable Income

Section 24 does not change your rental income. It changes how HMRC calculates your taxable income.

You pay tax on rental income before mortgage interest. This raises your taxable income on paper.

Higher taxable income can:

• Push you into a higher tax band
• Reduce personal allowance
• Increase student loan or child benefit charges

This effect hits landlords with high borrowing hardest. Cash flow may stay positive, but your tax bill can rise.

Some landlords face tax bills that exceed their real profit. This risk makes planning essential.

20% Tax Credit Explained

Instead of a deduction, you receive a 20% tax credit on mortgage interest.

The credit equals 20% of eligible finance costs, regardless of your tax band.

Tax band	Relief method	Effective relief
Basic-rate taxpayers	Tax credit	Often similar to old rules
Higher-rate taxpayers	Tax credit	Reduced relief
Additional-rate taxpayers	Tax credit	Much lower relief

The tax credit reduces your final tax bill, not your taxable income. This difference matters when thresholds apply.

You cannot carry unused tax credit forward or back.

Affected Taxpayers and Property Types

Section 24 applies to individual landlords who own UK or overseas residential property.

It affects:

• Sole traders
• Partnerships where all partners are individuals

It does not apply to:

• Limited companies
• Commercial property
• Furnished holiday lets

Basic-rate taxpayers may see little change. Higher-rate and additional-rate taxpayers usually pay more tax.

Tenant tax does not change, but your pricing decisions may. Many landlords review rents, borrowing levels, and ownership structure in response.

Legal Strategies to Mitigate Section 24’s Impact

You still have legal ways to reduce the tax pressure from Section 24. These options focus on ownership structure, property use, income sharing, and how you finance your buy-to-let portfolio.

Incorporation into a Limited Company

Moving your buy-to-let properties into a limited company can remove Section 24 limits. Companies can deduct all mortgage interest as a business cost before tax. You then pay corporation tax, not income tax, on rental profits.

This route suits landlords who plan to reinvest profits rather than draw income. Corporation tax rates often sit below higher personal tax bands.

Incorporation can trigger capital gains tax and stamp duty. Lenders also price buy-to-let mortgages for companies higher, with added mortgage arrangement fees.

Key points to weigh

• Full interest relief within the company
• Different lending rules and rates
• Upfront tax and legal costs
• Long-term planning works best here

Switching to a Furnished Holiday Let Structure

A furnished holiday let does not fall under Section 24. You can deduct mortgage interest in full if the property meets letting rules on availability and occupation.

This structure works best in strong holiday areas. You must let the property commercially and furnish it to a set standard.

Furnished holiday lets also allow capital allowances on items like furniture and equipment. These claims can reduce taxable profits further.

You need to manage higher turnover and seasonal income. Local rules and future tax changes can affect viability, so you should review this option often.

Spousal and Joint Ownership Transfers

Sharing or moving ownership can reduce the tax hit if your spouse pays tax at a lower rate. Section 24 still applies, but the lower tax band can soften the impact.

Transfers between spouses usually avoid capital gains tax. You can also change how income splits by filing a declaration when ownership shares differ from 50/50.

Common approaches

• Add a spouse as joint owner
• Adjust ownership percentages
• Align rental income with lower tax bands

This option works best for married couples or civil partners with uneven incomes.

Mortgage Restructuring Strategies

Refinancing cannot remove Section 24, but it can lower its effect. A lower interest rate reduces the finance cost that feeds into the tax charge.

You might switch lenders, extend the term, or adjust loan-to-value. Some landlords move to products with lower fees and steadier rates.

Finance costs like interest and mortgage arrangement fees still qualify for the 20% tax credit. Tracking these costs matters.

Before you refinance, check exit fees and stress tests. Not every buy-to-let mortgage change leads to a net gain.

Tax Planning, Allowable Expenses, and Portfolio Optimisation

You can still reduce your tax bill under Section 24 by managing expenses, income levels, and asset structure. Careful planning helps protect your net profit, improve rental yield, and support long‑term portfolio growth.

Claiming All Allowable Landlord Expenses

You can deduct most day‑to‑day costs from rental income before tax. These allowable expenses lower your taxable profit, even though mortgage interest no longer does.

Common allowable expenses include:

• Letting agent fees and tenant find costs
• Accountancy fees and tax return support
• Service charges and ground rent
• Repairs, maintenance, insurance, and safety checks

You must keep clear records and claim costs in the correct tax year. Capital items, like full property upgrades, do not qualify as expenses. Some fixtures may qualify for capital allowances in limited cases, such as in furnished holiday lets. Accurate claims protect cash flow and reduce errors during HMRC reviews.

Managing Tax Thresholds and Personal Allowance

Section 24 can push your taxable income higher, even if your real profit stays the same. This can reduce or remove your personal allowance and push you into a higher tax band.

You can manage this risk by spreading income across tax years. Pension contributions can reduce adjusted net income and restore lost allowance. Joint ownership may also help if your partner pays tax at a lower rate.

You should review income sources together, not just rental figures. Small changes can prevent higher marginal tax and protect your take‑home income.

Capital Gains and Stamp Duty Planning

When you sell, capital gains tax applies to the increase in value, not rental profit. You can reduce capital gains by using your annual allowance and deducting eligible costs, such as legal fees and improvement works.

Timing matters. Selling across different tax years can use multiple allowances. Transfers between spouses may also help with planning.

When buying, stamp duty land tax and the stamp duty surcharge affect upfront costs. These costs reduce overall returns and should factor into any expansion plan. Poor timing can erode long‑term gains.

Optimising Rental Profitability and Yield

Focus on net profit, not gross rent. Higher rent means little if costs and tax rise faster. Review each property in your property portfolio on its own performance.

Key actions include:

• Reassessing rent against local demand
• Reducing void periods and unnecessary spend
• Refinancing only when cash flow improves

Strong rental profitability supports better rental yield and future borrowing options. Properties that no longer meet targets may limit growth. Active review keeps your portfolio efficient and tax‑aware.

Market Implications and Seeking Personalised Advice

Section 24 has reshaped the rental market and changed how you plan, price, and manage property. You now face tighter margins, shifting tenant demand, and a stronger need for tailored tax guidance.

Trends Among UK Landlords and Industry Response

Many UK landlords have adjusted their approach since full Section 24 rules took effect. Some have reduced borrowing, while others have sold lower-yield homes. Limited company landlords have increased in number because companies can still deduct mortgage interest as a business cost.

Industry data from firms like Hamptons shows fewer small landlords and more portfolio restructuring. This shift affects supply in some areas and pushes landlords to focus on higher-quality, higher-rent homes.

Landlord associations such as the NRLA report higher demand for tax guidance and compliance support. You now need clearer records, careful forecasting, and realistic stress testing before taking on new debt.

Rising Rents and Tenant Impact

Section 24 has contributed to rising rents in many parts of the rental market. When your tax bill increases, you may raise rents to protect cash flow. Market conditions and local demand still set limits, but pressure remains.

The impact varies by area. Strong employment regions often absorb rent rises faster than lower-demand towns. Tenants may face fewer choices when landlords exit or sell.

Common tenant impacts include:

• Higher monthly rents
• Reduced availability of mortgaged rental homes
• More professionalised landlords with stricter criteria

Insurers like AXA note growing focus on tenant affordability and risk. You need to balance fair pricing with long-term occupancy to reduce void periods.

The Role of Professional Advice and Associations

Personalised advice now plays a central role in managing Section 24 exposure. A landlord tax consultation can help you model income, tax bands, and ownership structures based on your exact position.

Accountants can assess whether incorporation suits you or whether other reliefs still apply. They also help you avoid costly errors when transferring property or refinancing.

Landlord associations offer practical support:

• NRLA: tax updates, training, and helplines
• Local groups: peer insight on rent setting and demand

You should seek advice before major decisions. Generic guidance rarely fits your income mix, borrowing level, and long-term goals.

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