Section 24 is one of the most consequential — and most widely misunderstood — changes to UK buy-to-let taxation in a generation. It was introduced by George Osborne’s 2015 Budget, phased in from 2017 to 2020, and has been quietly reshaping the small-landlord economy ever since.
Combined with higher interest rates, the Renters’ Rights Act, and the proposed EPC C minimum standard, Section 24 is the reason a significant number of UK landlords have crossed the arithmetic threshold between “profitable” and “not” — and are now considering selling.
This post explains what Section 24 actually does, who it affects most, and what the honest options are.
What Section 24 changed
Before April 2017, UK landlords could deduct mortgage interest from rental income before calculating taxable profit — the same as any other business expense. Section 24 changed this for individual (non-corporate) landlords.
From 2020, mortgage interest is no longer deductible. Instead, landlords receive a 20% tax credit on interest paid — regardless of their marginal rate.
The effect on a higher-rate taxpayer:
Pre-2017 (interest deductible):
- Rental income: £15,000
- Mortgage interest: £8,000
- Other costs: £2,000
- Taxable profit: £5,000
- Tax at 40%: £2,000
- Net after tax: £3,000
Post-2020 (Section 24 in full force):
- Rental income: £15,000
- Other costs: £2,000
- Taxable “profit” (ignoring interest): £13,000
- Tax at 40%: £5,200
- Less 20% interest credit (£8,000 × 20%): £1,600
- Effective tax: £3,600
- Net after tax and interest: £15,000 − £2,000 − £8,000 − £3,600 = £1,400
Same rental income. Same costs. Different tax = £1,600 less in pocket annually.
Who Section 24 affects most
Section 24 was designed to affect higher-rate and additional-rate taxpayers while protecting basic-rate landlords. In practice, its impact varies with:
- Income level. Higher-rate and additional-rate landlords are much harder hit. Basic-rate landlords (pushed into higher-rate because of the now-notional rental income) are also affected — this is a common trap.
- Leverage. Landlords with high loan-to-value mortgages are disproportionately affected. Cash-bought landlords essentially don’t notice Section 24.
- Interest rates. The higher the mortgage rate, the bigger the Section 24 effect. 2020–2022 base rates of 0.1%–0.75% softened the impact; 2023–2026 rates of 4–5.25% have amplified it dramatically.
- Number of properties. Portfolio landlords with multiple mortgaged properties compound the effect.
A highly-leveraged higher-rate landlord with a 5% mortgage rate can easily find their effective tax rate on rental income exceeding 100% — meaning the property genuinely costs them money each year, before considering any capital appreciation.
The incorporation question
One response to Section 24 is to transfer the portfolio into a limited company. Companies are not subject to Section 24 — they deduct mortgage interest normally as a business expense. Corporation tax (currently 25% on profits over £250,000, 19% below £50,000, tapered in between) replaces income tax.
Incorporation sounds appealing but carries real costs:
- Capital Gains Tax on transfer. The transfer is a disposal; CGT applies to any gain since acquisition.
- Stamp Duty on the “purchase” by the company. 3% additional-dwellings surcharge applies.
- Remortgaging. Every property needs to be refinanced on commercial-rate mortgages, which typically carry higher interest rates than residential buy-to-let.
- Ongoing company admin costs. Accounts, filings, professional fees.
- Extracting income from the company (as dividend or salary) has its own tax cost.
For very large portfolios, incorporation often makes sense. For 1–3 property landlords, it rarely does — the one-off costs exceed the ongoing tax savings.
Speak to an accountant before deciding. This is not advice; it’s context.
The realistic options
Faced with the arithmetic, individual landlords are broadly choosing one of these paths:
- Hold and adapt. Accept the lower net return, focus on strong-covenant tenants, minimise voids. Viable for low-leverage or unleveraged landlords.
- Incorporate. For larger portfolios only, with accountant sign-off.
- Reduce leverage. Pay down mortgages where possible; the Section 24 effect falls with interest paid.
- Sell. Take the capital, accept the CGT, reinvest elsewhere or realise the equity. Common for 1–3 property landlords reaching retirement, or where the property is underperforming.
If you sell: CGT considerations
Selling triggers Capital Gains Tax on the gain since acquisition. 2026 rates on residential property disposals: 18% basic rate, 24% higher rate. Annual exempt amount: £3,000.
Reduce the CGT bill by:
- Timing the sale in a tax year with lower other income (pushing more of the gain into the basic-rate band).
- Using spousal transfer to split the gain between two annual exempt amounts.
- Offsetting allowable improvement costs (capital expenditure, not revenue) from the gain calculation.
- Using private residence relief if the property was ever your main home (letting relief is narrower post-2020 but can still apply).
Speak to an accountant. The difference between a well-planned sale and a badly-timed one can be tens of thousands of pounds on a typical buy-to-let disposal.
The Renters’ Rights Act tipping point
For many landlords, Section 24 was a slow squeeze. The Renters’ Rights Act — with its loss of Section 21 flexibility, longer possession timelines, and additional compliance overhead — is the trigger that turns a drift into a decision.
The maths were already borderline; the regulatory change is the prompt to actually act on the maths.
If you’ve decided to sell
Sell with tenants in situ if you want to avoid the new grounds-based possession process. Sell with vacant possession if you’ve already served notice or the tenancy is ending naturally. For the detailed comparison, see landlord exit options compared.
We buy buy-to-let property in cash, tenanted or vacant, typically within 7 days of acceptance. Share the postcode, current rent, and tenancy type — we’ll respond within 24 hours with a written offer.