If you’re a landlord, you may have noticed your tax bill has gone up—even if your profit hasn’t.
The reason is Section 24, which restricts how you claim mortgage interest relief on rental properties.
Here’s what you need to know and how the rules work in practice.
What Was the Old System?
Before Section 24, landlords could deduct all mortgage interest as an expense before calculating tax.
Example:
- Rental income: £12,000
- Mortgage interest: £8,000
- Taxable profit: £4,000
You’d only pay tax on £4,000.
What Changed Under Section 24?
Since April 2020, you can no longer deduct mortgage interest in full.
Instead, you get a basic rate tax credit of 20%.
This change means:
- Your taxable profits look higher
- You could be pushed into a higher tax band
You might lose personal allowances or child benefit
Worked Example – Old vs. New
Here’s how this works in real numbers:
Before Section 24:
- Rental income: £12,000
- Mortgage interest: £8,000
- Taxable profit: £4,000
- Tax at 40%: £1,600
After Section 24:
- Rental income: £12,000
- No deduction for interest
- Taxable profit: £12,000
- Tax at 40%: £4,800
- Less 20% tax credit on £8,000 interest (£1,600)
- Final tax: £3,200
The tax bill has effectively doubled.
Does This Affect Basic Rate Taxpayers?
If you pay tax at 20%, Section 24 usually doesn’t change your bill much.
But if your rental income pushes you over the higher-rate threshold, you’ll pay more tax overall.
Can You Still Claim Mortgage Interest?
Yes—you don’t lose the relief entirely.
Instead of deducting it as an expense, you get a 20% credit applied against your tax liability.
This is why taxable profits look bigger even if your real profit hasn’t changed.
How Do Limited Companies Work?
Section 24 does not apply to limited companies.
If you hold property in a company:
- You can deduct mortgage interest in full as a business expense
- You pay Corporation Tax on profits
- Taking money out of the company is subject to its own taxes (like dividends)
Common Myths
Some misunderstandings I often hear:
- “You can’t claim mortgage interest at all.” – Not true, you still get a 20% credit.
- “Section 24 applies to all property.” – It only affects residential lettings.
- “A company is always better.” – It depends on your income, goals, and property plans.
What Should You Do Next?
If Section 24 is pushing up your tax bill, you might:
- Review whether a company structure suits you
- Consider transferring property shares to a spouse (with advice)
- Time your repairs and expenses carefully
It’s worth getting tailored advice before making changes.
Watch: HMRC’s Explanation of Section 24
Need Help?
Understanding Section 24 is essential if you own rental property.
If you’d like help working out your options, get in touch—I’m here to help.
Book a Tax Review for Your Rental Property
Grace Certified Accountants – Helping landlords stay compliant and tax-efficient.