5 MIN READ
What is a Section 24?
The Impact on UK Landlords
Understanding the impact of section 24 changes on UK landlords
Section 24 of the Finance Act 2015 has changed the rules around how landlords are taxed in the UK and the effects have been significant.
Whether you’re just learning about these changes or already feeling the financial impact, it’s essential to understand what Section 24 is, why it was introduced, and how landlords are responding. This guide breaks it all down, clearly and simply.
What is section 24?
Section 24 changed how landlords are taxed on their buy-to-let properties. Introduced in the Finance Act 2015, the rules have been phased in between April 2017 and April 2020.
Why was Section 24 introduced?
Section 24 was introduced as part of a wider government effort to make housing more affordable and accessible, particularly for first-time buyers.
At the time, the buy-to-let market was booming. With rising house prices and growing competition between landlords and residential buyers, the government took steps to try limiting landlord activity and shift focus back to homeownership.
The goals of Section 24 were to:
- Reduce the attractiveness of buy-to-let as an investment
- Curb unpredictable property investment
- Encourage homeownership
- Level the playing field between landlords and residential buyers
Former Chancellor George Osborne argued that landlords had a tax advantage unavailable to ordinary homebuyers. Section 24, along with measures like the 3% stamp duty surcharge on second homes, was introduced to help rebalance the market.
Despite these changes being controversial with landlords, it forms a central part of the government’s reforms on housing policy.
Before & after Section 24
Section 24 of the Finance Act 2015 has changed the rules around how landlords are taxed in the UK and the effects have been significant.
Whether you’re just learning about these changes or already feeling the financial impact, it’s essential to understand what Section 24 is, why it was introduced, and how landlords are responding. This guide breaks it all down, clearly and simply.
Before Section 24, landlords could:
- Deduct 100% of mortgage interest and finance costs from rental income before paying tax
- Reduce their taxable profit, and often their tax bill, significantly
After Section 24, landlords must:
- Pay tax on their full rental income, not profit after expenses
- Claim only a 20% basic rate tax credit on mortgage interest, regardless of their actual tax band
These restrictions don’t just apply to mortgage interest. Other finance costs affected include:
Mortgage arrangement fees
Interest on loans used to improve or renovate the property
Early repayment charges
This change has particularly impacted higher-rate taxpayers, many of whom now face significantly increased tax bills.
How does Section 24 work?
Under Section 24, you’re taxed on your gross rental income, not just your profits. That means mortgage interest and other finance costs no longer reduce your taxable income.
You can still claim a 20% tax credit on interest payments, but this is much less valuable if you’re a higher-rate taxpayer.
Example:
- Rental income: £15,000
- Mortgage interest: £5,000
For basic-rate taxpayers (20%):
- Tax due on £15,000 = £3,000
- Less 20% credit on mortgage interest = £1,000
- Final tax bill = £2,000
For higher-rate taxpayers (40%):
- Tax due on £15,000 = £6,000
- Less 20% credit on mortgage interest = £1,000
- Final tax bill = £5,000
If you’re in a higher tax band or have a large mortgage, Section 24 could significantly affect your profitability.
Who does Section 24 affect?
Section 24 doesn’t affect everyone equally. Understanding whether it applies to you is the first step to deciding your next move. Have a look below to see at a glance whether the new section 24 ruling applies to you.
Section 24 applies to:
- Individual landlords who own rental property in their own name
- UK residents with income from residential property lettings
- Landlords using mortgages or loans to fund properties
Section 24 does not apply to:
- Limited companies, as they can still deduct mortgage interest as a business expense
- Furnished holiday lets, which are subject to different tax rules
- Commercial property owners
How has Section 24 affected landlords?
Section 24 has made it more expensive for landlords with buy-to-let mortgages to operate.
Key impacts:
As a result, some landlords have had to rethink their approach by adjusting portfolios or looking for new ways to reduce their tax burden.
How have landlords responded?
Since Section 24 was introduced, many landlords have had to adapt their strategies to manage the increased tax burden. Here are some of the main responses:
1. Attempts to reverse Section 24
There have been legal challenges and petitions – including a high-profile case led by Cherie Booth (formerly Cherie Blair) in 2016 – but the policy remains in place. Both Conservative and Labour governments have supported it.
2. Shifting investment strategies
Section 24 has forced many landlords to rethink their strategy and find new ways to remain profitable. Some of the most common responses include:
Many landlords, particularly those with smaller portfolios or high mortgage costs, have chosen to sell up. For some, the tax burden made certain properties unviable.
Setting up a limited company has become a popular route. Companies can still deduct mortgage interest and benefit from lower corporation tax rates, making this a more tax efficient option for some investors.
According to Hamptons, the number of companies holding buy-to-let property has increased by 332% since mortgage interest relief began to be withdrawn in 2016 — reaching over 401,000 by the end of 2024.
To offset higher costs, many landlords have increased rents. While this helps maintain profits, it can also price some tenants out of the market and add pressure in already unaffordable areas.
Some landlords are now exploring:
- Furnished holiday lets, which offer different tax treatment
- Commercial properties, which are exempt from Section 24
- Debt-free purchases, to avoid the impact of mortgage interest altogether
How has Section 24 affected tenants and the wider market?
While Section 24 was designed to level the playing field for first-time buyers, its implementation has had significant ripple effects on tenants and the rental market. The financial pressures faced by landlords have led to changes that directly impact renters and housing availability.
Rising rents
Many landlords have increased rents to cover higher tax bills
Reduced supply
Some landlords have left the market entirely, making rental properties harder to find
Affordability issues
In areas with high demand, rent increases have outpaced wage growth
A recent report by NRLA stated that 26% of landlords had sold at least some rental properties by the end of 2024, driven largely by financial pressures such as tax changes and rising costs.
What landlords can do now
Section 24 is here to stay, but that doesn’t mean you’re out of options. Here’s what you can do today:
Common questions and confusions
A: Only as a 20% tax credit. You can’t deduct it from your rental income like before.
A: Not anymore. You’re taxed on full rental income, then the tax credit is applied.
A: No. Section 24 only affects individual landlords. If you own property through a limited company, you can still claim full mortgage interest relief.
A: No. Section 24 is only about how mortgage interest is treated for income tax purposes.
Moving forward with confidence
Section 24 has made property investment more challenging, especially for landlords with mortgages or higher incomes. But with the right strategy, it can still work for you.
Now’s the time to review your setup, seek expert advice, and explore smarter ways to manage your portfolio, whether that’s through incorporation, refinancing, or diversifying.
It’s also worth checking how you’re protecting your rental income. With rising costs and tighter margins, unexpected issues can hit hard.
It’s also worth making sure you have the right protection in place to protect your investments if anything goes wrong.
Protect the future of your property with AXA
Being a good landlord is about more than collecting the rent. It’s about protecting your investment too. Protect your property today and Future You will thank you.
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