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When Section 24 of the Finance Act was introduced, many landlords panicked — thinking they’d lose the ability to deduct mortgage interest from rental income.
But here’s the good news 👇
If you’re a basic rate taxpayer, Section 24 doesn’t increase your tax bill.
Let’s break it down and see exactly how it works.
Before Section 24
Landlords could deduct 100% of their mortgage interest before calculating their taxable profit.
After Section 24 (Current Rules)
Landlords can’t deduct mortgage interest as an expense.
Instead, they get a 20% tax credit on the interest paid.
This matters most if your income pushes you into a higher tax bracket — because the tax credit is fixed at 20%, even if you pay 40% or 45% tax.
💡 Side-by-Side Example
| Before Section 24 | After Section 24 | |
|---|---|---|
| Rental income | £15,000 | £15,000 |
| Mortgage interest | £5,000 | £5,000 (no longer deductible) |
| Taxable profit | £10,000 | £15,000 |
| Tax at 20% (basic rate) | £2,000 | £3,000 |
| Tax credit (20% of £5,000) | N/A | £1,000 |
| Final tax payable | £2,000 | £2,000 ✅ |
➡️ Result:
Basic rate taxpayers pay the same as before.
Now, let’s look at a higher rate taxpayer:
| Before Section 24 | After Section 24 | |
|---|---|---|
| Rental income | £15,000 | £15,000 |
| Mortgage interest | £5,000 | £5,000 (no longer deductible) |
| Taxable profit | £10,000 | £15,000 |
| Tax at 40% | £4,000 | £6,000 |
| Tax credit (20% of £5,000) | N/A | £1,000 |
| Final tax payable | £4,000 | £5,000 ❌ |
➡️ Result:
Higher rate taxpayers lose £1,000 in extra tax due to Section 24.
Why It Still Matters for Basic Rate Landlords
Even though you’re not directly affected, Section 24 can push some landlords into the higher rate band because your taxable income is now higher (mortgage interest is added back in).
So if your total income is close to £50,270, watch out — you might tip into the next bracket without realising it.
Thinking About a Limited Company?
Limited companies aren’t affected by Section 24.
They can still deduct mortgage interest as a business expense before paying Corporation Tax.
That’s why many landlords are now setting up SPVs (Special Purpose Vehicles) for new properties.
Final Thoughts
✅ Basic rate taxpayers: unaffected (for now).
⚠️ Higher rate taxpayers: expect higher bills.
🏢 Companies: still fully deductible.
Every landlord’s situation is different — and the right move depends on your income mix, mortgage costs, and long-term plans.
💬 Need Help Running the Numbers?
Get personalised property tax advice from Taxes Done Right Ltd — experts in landlord and property taxation.
