Section 24 – The Complete Guide for LandlordsSection 24 – The Complete Guide for Landlords


What is Section 24?

Section 24 of the Finance Act 2015 stipulates that landlords with properties in their personal names cannot claim 100% income tax relief on mortgage finance costs.

Income tax is therefore effectively calculated on property-related earnings before mortgage interest payments. A credit of 20% (or equivalent to the basic rate of tax) is, however, applicable.

Introduced by former Conservative Chancellor of the Exchequer George Osborne, the announcement came as a major shock to many landlords – particularly those in the higher income bracket.

What is Section 24?

What Does Section 24 Ultimately Mean for Landlords and Property Investors?

As a result of Section 24, landlords pay tax on a much higher proportion of gross revenue and effectively their profits.

The most exposed are higher-rate taxpayers, earning £50,271 and above.  Those earning above the personal allowance (£12,570) and under the higher rate (£50,270) have also come under risk due to being unintentionally pushed into a higher bracket.

Previous Section 24 Phases

As means of controlling the full effect of Section 24, the legislation was phased between 2017 and 2021 in 25% increments – as shown in the table below:

Tax YearMortgage Interest Deductible from Annual Rental Income
2019/20 25%
2020/21 0%

Why Was Section 24 Implemented?

This question still leaves landlords perplexed…

The government’s justification at the time was to slow down the speculative growth of the Private Rented Sector (PRS) and professionalise the sector.

Driving out amateur and highly geared landlords, it is believed, would result in better quality standards and more rental properties moving into the hands of owner-occupiers.

Despite an estimated 98% of the £1 trillion private rented sector tied up in the hands of approximately 1.5 million landlords, others also believe the government is “pandering” to the institutional investment sector. In recent years, purpose-built PRS or build-to-rent development schemes have indeed grown in presence – particularly in larger towns and cities.

Another plausible argument is that landlords are simply “easy targets” as a means of earning tax revenues and thereby reducing the current account deficit.

Tenant Tax

Section 24 was subsequently labelled the Tenant Tax in response to a growing number of landlords having no choice but to increase rents to cover overheads.

Combined with sustained inflationary pressures and a disfavourable operating environment, many landlords have consequently decided to sell up their properties. This has, in turn, fuelled further rent rises due to the growing undersupply of decent properties to let.

On this note, criticisms by The Institute for Fiscal Studies, The Institute of Chartered Accountants and a broad spectrum of MPs have been largely ignored.  Petitions often fall on deaf ears and most industry professionals have resigned to the fact that the status quo will remain.

Section 24 Calculator

This Section 24  applies to residential property sales and uses HM Revenue & Customs directives.

How to use the Section 24 Calculator:

  1. Assuming you are an individual with a personally owned rental property (i.e. one that is not held within a Limited company) you’re more likely to be affected by Section 24)
  2. You will need to enter the annual property rental income, expenses and mortgage interest paid (the net income box will then calculate automatically)
  3. Remember to add in your property losses (through repairs and maintenance, for example) brought forward from the previous tax year. Your accountant should be able to provide this or you can obtain it from your SA302
  4. The calculator will then apply your personal allowance amount and produce a calculation for basic and higher rate tax payments owed to the HMRC (minus the 20% interest cost relief).
Are you an individual or partner in a partnership?
Is this residential property let?
Property rental income
Property expenses (repairs / replacements / refurbishment)
Mortgage interest paid
Net income
Property losses brought forward from previous tax year (if any)
Chargable income
Personal allowance
Taxable income
Basic rate income tax
Higher rate income tax
Total tax liability
Less: interest cost relief (stands at 20%)
Tax liability

Section 24 (interest cost relief) does not apply to you.

Please note that the Section 24 calculator above is for guidance purposes. There is no substitute for communicating with a qualified accountant / tax advisor. For instance, we have not included supplementary income that you generate outside of property investment (which can make a crucial difference to your tax calculations).

Why Section 24 Should Be of Concern

Irrespective of the position on the tax banding scale, all landlords should be aware of the risks and repercussions resulting from Section 24.

Firstly, as interest rates have increased, some landlords struggle to re-mortgage to competitive pay rates. Others remain stuck on high Standard Variable Rates (SVRs).

Secondly, Section 24 has meant higher tax bills and poor (or even negative) cash flow. The situation becomes worse for those who have taken out a high level of secured debt (“overgearing”).

Examples of Section 24 “In Action”

In the examples below, Landlord A and Landlord B are personal owners of properties with market values of £100,000.  The gross yields generated from both properties are 7.2% – i.e. £600 per calendar month in rent.

Examples of Section 24 In ActionExamples of Section 24 In Action

Section 24 Workarounds

It is important not to panic. Many landlords have successfully dealt with the repercussions of this legislation.

As a priority, we strongly suggest discussing your position with a suitably qualified accountant or tax advisor. This also goes for any future buy-to-let purchases you plan to make.

In addition to the calculator above, your accountant will be able to provide spreadsheets and tools to help project future tax liabilities in good time (using previous tax returns, for example).

There are also a number of potential strategies worth considering…

Deleverage Your Portfolio

Deleverage Your Portfolio

The regulatory / compliance requirements and prevailing anti-landlord sentiment can make the sector offputting.  For this reason, many property investors have exited the sector.

Others have made capital repayments or transferred lump sums from existing savings towards the overall mortgage amount. The aim here is to reduce the overall level of gearing.

In this scenario, remember to check with your lender that you will not incur any Early Repayment Charges (ERCs) for the overpayment(s).

Divest and Reinvest

Divest and Reinvest

Disposing of the property/properties and then using the outstanding sales proceeds to make further acquisitions within a more tax-efficient Limited Company structure can work well.

Remember to take into account any potential Capital Gains Tax (CGT) liabilities and check for any allowances that you may be entitled to. You will also incur higher rate stamp duty in England and Wales (check the calculations in Wales and Scotland) when buying new properties alongside conveyancing fees and other transactional costs.

Bear in mind the ongoing tenancy and other cash-flow / management issues as you manage the process. A good accountant can also advise you on how to be tax efficient.

Transferring Property to a Spouse or Legal Partner

Transferring Property to a Spouse or Legal Partner

Providing he/she is a low-rate taxpayer, transferring ownership of the property to your spouse or civil partner is sometimes a workable solution.

However, it is important to confirm that any supplementary rental income will not push him/her into a higher tax bracket.

This strategy may also backfire in the future should your spouse / partner wish to gain extra income through employment or other means.

Increasing Rents

Increasing Rents

This will largely be dependent on local market dynamics. Landlords need to be certain that price rises directly correlate to the quality of housing provided and overall affordability levels.Particularly outside of London and the larger cities, wages are not rising as sustainably as many are led to believe. Certain cross-sections of tenants also may not be able to claim sufficient levels of housing benefit (Local Housing Allowance). Many also continue to struggle to keep up with bills and other household costs which, in turn, is causing voids.

Furthermore, investment property owners should also be mindful of fuelling the already tense “anti-landlord” sentiment across the UK.

Reduce Net Income

Reduce Net Income

Remember that refurbishment costs are still 100% tax deductible. Investing any capital you have to improve the condition of the property can help offset the effects of Section 24.

It may also be possible to use occupational pension contributions to reduce net employment income.

Transfer Properties Over to a Limited Company Structure (Incorporation)

Perhaps the most debated strategy to mitigate Section 24 is to effectively “sell” personally owned properties into special purpose vehicle (limited company) structures. Accountants refer to this process as incorporation.

However, before proceeding, we would strongly recommend a cost-benefit analysis alongside careful tax planning with a suitably qualified professional.

Also, note the following facts:

Transfer Properties Over to a Limited Company Structure (Incorporation)

Incorporation Relief

It’s possible to eliminate Capital Gains Tax (CGT) by means of a qualifying business transfer in exchange for shares.  Accountants and tax advisors often will refer to this as incorporation relief.

In this scenario, the following needs to be demonstrated:

  1. The company is genuinely undertaking property-related business activities;
  2. Definitive proof of active full-time portfolio management.

This latter point, unfortunately, is likely to be an unsubstantiated argument for most small, medium and even larger sole-trader landlords to make.

The “Ramsay” Legal Precedent

Each case will be judged on its own merits, however, the most common legal precedent cited at the time of writing is the “Ramsay” case (Elizabeth Moyne Ramsay v HMRC [2013]), where the plaintiff2 was able to demonstrate 20 hours of working in the business for the purposes of s.162 of the 1992 Taxation of Chargeable Gains Act (TCGA).

In short, the court decision was based on a qualitative analysis of “hands-on” involvement in day-to-day management3. Activities such as attending courses, networking and property viewings would usually be acceptable justifications.

2 Mrs Elisabeth Moyne Ramsay who had a single property divided into 10 self-contained apartments with a large communal area, car parking, garages and a garden. [Back to Content]

3 Spending at least 20 hours a week on property activity, Mrs Ramsay and her husband (both of who did not have any other occupation) engaged in the following activities:

[Back to Content]

Stamp Duty Land Tax (SDLT) Minimisation

When transferring a portfolio of properties into a Limited company – to mitigate Stamp Duty Land Tax (SDLT) – it may be possible to benefit from multiple dwellings relief.

Here, the level of tax is based on the average value of all the properties being transferred into the Limited company in exchange for shares.

As an example, if an investor has a residential portfolio of 15 properties valued at £2.1 million – each with an average value of £140,000 – the amount of SDLT owed per property would be £4,500 (£125,000 at 3% in addition to £15,000 at 5%), giving a total of £67,500.

Another option could be for the Limited company to opt for the transfer to be taxed at non-residential rates when six or more properties are transferred at the same time. In this scenario, the additional 3% residential investment SDLT surcharge would be exempt.

However, it should be noted multiple dwellings relief would not be available and Stamp Duty would be applied to the total value of the entire portfolio.

In most situations, therefore, property given away or transferred to another person or limited company will involve “chargeable consideration”. This effectively means that Stamp Duty is by and large unavoidable.

Stamp Duty Land Tax (SDLT) Minimisation - When Transferring Properties into a Limited Company to Mitigate the Effects of Section 24

Transfer Properties into a Partnership

By virtue of Schedule 15 of the 1890 Partnership Act, it’s possible to move properties into a partnership for a period of between 2 and 3 years (prior to setting up a Limited Company).

In a similar vein to incorporation relief, there must be two “connected” people working together in a genuinely commercial business environment.

Note that whilst spouses, siblings, civil partners, parents and their adult children theoretically count as two partners, the use of this exemption has become open to some debate.

HMRC can remove the relief should it be deemed that the partnership creation is deliberately for the purpose of avoiding SDLT.

However, assuming that the partnership is legitimate in the eyes of the tax authorities and not contrary to any anti-avoidance legislation, the following steps would need to be taken:

  1. Legally create the partnership via the HMRC.
  2. The income / costs / profit from the property section of the Self-Assessment (SA) will be transferred to the partnership section and submitted in the most tax-efficient manner.  Typically, this involves allocating the majority of the income to the lower-rate taxpayer for 2-3 years.
  3. At the end of the 2-3 year period, a qualified solicitor will then draw up a partnership agreement to incorporate the properties into the Limited Company.
  4. From this point onwards, the partnership will need to submit annual accounts and corporation tax returns in addition to Self-Assessments as Directors of the business.

Transfer Properties into a Partnership to Mitigate the Effects of Section 24

A Note on Running a Buy to Let Property Company

You may discover that following the above steps to reduce CGT and SDLT has actually not saved any costs

Note also that extracting profits from a Limited Company is more difficult.  There will also be chargeable income tax on dividends (on any amount over £1,000) which may also lead to a greater effective personal tax burden if you are a higher (or additional rate) taxpayer.

Should the money be withdrawn as a salary, National Insurance will also be levied. There will be corporation tax on profits made from rental income and future disposals.

Beware of Deed of Trusts

Avoid Deed of Trust arrangements (also known as Beneficial Interest Company Trusts). The core idea of using an artificial structure to transfer the beneficial interest of a property into a Limited Company. The theory is that the landlord can then retain title and keep the mortgage in one’s own name (as a nominee).

The wide consensus amongst tax advisors is to avoid such schemes. Indeed, breaching tax laws can often lead to unexpected liabilities and even serious financial penalties down the line.

The principal issue from a tax perspective is a section of the Income Tax Act that prevents individuals from transferring an income stream into a company for tax reasons. Most (if not all) lenders terms and conditions also disallow for mortgage transfers into a company in this way. In the best-case scenario, the mortgage company may re-issue the loan in the company’s name but under entirely different terms.

Moreover, borrowers may well be open to allegations of “mortgage fraud”.  In worst-case scenarios, this could lead to a demand for immediate loan redemption, penalties or even more serious legal action.


Much of the content in this post merely scratches the surface. To reiterate, Property Solvers Auctions are not accountants or tax advisors. We strongly advise having any decision reviewed in detail by a qualified professional.

In this regard, it should be noted that many accountants are not fully versed in the area. Specific due diligence of the firm is theefore strongly advisable. As well as Companies House, the necessary credentials can also be verified at the Institute of Chartered Accountants in England and Wales and the Chartered Institute of Taxation.

It is also possible to obtain a “pre-transaction ruling” or a “non-statutory clearance” (in writing) from the HMRC. This will more certainty that there are no contraventions of General Anti-Abuse Rules (GAAR), Disclosure of Tax Avoidance Schemes (DOTAS) or other tax evasion legislation.