Section 24 BTL mortgage rules changed the way individual landlords are taxed on residential rental income. Instead of deducting mortgage interest from rental profits before tax, many landlords now receive a basic-rate tax credit on finance costs. For landlords with a buy-to-let mortgage, this can reduce net profit, push income into a higher tax band and change how lenders assess future borrowing.
For property investors, Section 24 is not just a tax rule. It affects portfolio strategy, refinancing decisions, limited company planning, rental yield calculations and whether a buy-to-let still works after interest rate changes.
Lockwell Finance helps landlords and investors review buy-to-let funding options, including personal-name purchases, limited company/SPV structures, refinancing and portfolio planning. If you are unsure whether your current mortgage structure still works, speak to the team for a practical review before making your next move.
What Is Section 24?
Section 24 is the rule that restricts how individual landlords claim tax relief on residential property finance costs.
Before the change, landlords could usually deduct mortgage interest from rental income before calculating taxable profit. After Section 24, individual landlords are taxed on rental income after allowable non-finance expenses, but mortgage interest is not deducted in the same way. Instead, the landlord receives a tax credit based on the basic rate.
In simple terms:
Section 24 means many individual landlords pay tax before fully accounting for mortgage interest, then receive a basic-rate credit afterwards.
This matters most for landlords who:
- Own residential rental property personally
- Have buy-to-let mortgage interest or other finance costs
- Pay higher-rate or additional-rate tax
- Have heavily mortgaged properties
- Are close to moving into a higher tax band
- Are planning to refinance or expand a portfolio
If you are buying or refinancing a rental property, Lockwell Finance can help you assess how lenders may view the deal alongside rent, loan size, borrower profile and ownership structure. See the Buy-to-Let Mortgages service page for more guidance.
Why Section 24 Matters for Buy-to-Let Mortgages
A buy-to-let mortgage is usually assessed on rental income, loan-to-value, interest coverage and borrower profile. Section 24 adds another layer: the mortgage may be affordable from a lender’s view, but less profitable after tax from the landlord’s view.
That gap is where many landlords get caught.
A property can appear to have:
- Positive monthly cash flow before tax
- A rent level that satisfies lender stress testing
- A sensible loan-to-value
- A competitive mortgage product
But after Section 24, the landlord’s personal tax position can significantly reduce the real return.
This is why a proper section 24 BTL mortgage review should look at both the mortgage and the tax position. The cheapest monthly mortgage payment is not always the best long-term structure if the ownership route, tax band or refinancing strategy is wrong.
How Mortgage Interest Relief Worked Before Section 24
Before the Section 24 changes, landlords could generally deduct mortgage interest as an expense before calculating their taxable rental profit.
Example:
- Annual rent: £18,000
- Non-finance allowable expenses: £3,000
- Mortgage interest: £8,000
- Taxable rental profit: £7,000
The landlord paid income tax on £7,000.
This system meant mortgage interest directly reduced taxable profit. Higher-rate landlords received relief at their marginal tax rate because the finance cost was deducted before the tax calculation.
For example, a higher-rate taxpayer effectively received 40% relief on the interest. An additional-rate taxpayer received relief at 45%.
Section 24 changed that.
How Section 24 Works Now
Under Section 24, individual landlords can no longer deduct most residential finance costs from rental income before working out taxable profit.
Using the same example:
- Annual rent: £18,000
- Non-finance allowable expenses: £3,000
- Mortgage interest: £8,000
- Taxable rental profit before finance credit: £15,000
The landlord is taxed on £15,000, then receives a basic-rate tax credit based on mortgage interest.
This creates three important effects:
- The taxable rental profit looks higher.
- The tax credit may be worth less than the old deduction for higher-rate landlords.
- The increased taxable income can push some landlords into a higher tax band.
That is why Section 24 is sometimes described as creating “paper profit”. The landlord may not feel richer, but the tax calculation can make the rental profit appear higher.
Section 24 Example: Basic, Higher and Additional Rate Landlords
Here is a simple comparison using the same property figures.
Annual figures:
- Rent received: £18,000
- Non-finance expenses: £3,000
- Mortgage interest: £8,000
- Actual cash profit before tax: £7,000
Before Section 24
Taxable profit:
£18,000 rent
minus £3,000 expenses
minus £8,000 mortgage interest
= £7,000 taxable profit
Estimated tax:
- Basic-rate taxpayer at 20%: £1,400
- Higher-rate taxpayer at 40%: £2,800
- Additional-rate taxpayer at 45%: £3,150
Under Section 24
Taxable profit:
£18,000 rent
minus £3,000 expenses
= £15,000 taxable profit
Then apply a 20% tax credit on £8,000 mortgage interest:
£8,000 x 20% = £1,600 tax credit
Estimated tax after credit:
- Basic-rate taxpayer: £3,000 tax minus £1,600 credit = £1,400
- Higher-rate taxpayer: £6,000 tax minus £1,600 credit = £4,400
- Additional-rate taxpayer: £6,750 tax minus £1,600 credit = £5,150
What this means
For a basic-rate taxpayer, the outcome may be broadly similar in this simple example.
For a higher-rate taxpayer, the tax bill increases by £1,600.
For an additional-rate taxpayer, the tax bill increases by £2,000.
This is why the section 24 impact is especially important for highly leveraged landlords and investors with income outside property.
Section 24 and the 2027 Property Income Tax Change
From April 2027, property income tax rates are expected to move to separate property income rates. This means property income will not simply follow the standard income tax rates.
The planned property income rates are:
- Property basic rate: 22%
- Property higher rate: 42%
- Property additional rate: 47%
The finance cost relief is also expected to be calculated at the property basic rate of 22%.
For landlords, this means Section 24 remains relevant. The relief rate may move from 20% to 22%, but higher-rate and additional-rate landlords may still be exposed to a gap between the tax charged on property income and the finance cost relief available.
A landlord paying the property higher rate may receive relief at 22%, not 42%. A landlord paying the property additional rate may receive relief at 22%, not 47%.
That difference can still affect net returns, especially where mortgage interest is high.
Which Landlords Are Most Affected by Section 24?
Section 24 does not affect every landlord in the same way.
Landlords most likely to feel the impact
The rule is usually most painful for:
- Higher-rate taxpayers
- Additional-rate taxpayers
- Landlords with large mortgages
- Landlords with low net yields
- Landlords who rely on rental income personally
- Portfolio landlords with several personally owned mortgaged properties
- Investors refinancing at higher interest rates
- Landlords close to losing personal allowance due to taxable income
- Landlords close to child benefit or student loan repayment thresholds
Landlords who may be less affected
The impact may be lower for:
- Basic-rate taxpayers who remain within the basic-rate band
- Landlords with little or no mortgage debt
- Limited company landlords
- Commercial property investors
- Investors with strong rental yields and lower gearing
Even basic-rate landlords should not ignore Section 24. The issue is not only the tax credit. The increased taxable property income can affect your wider tax position.
Does Section 24 Apply to Limited Company Buy-to-Let?
Section 24 applies to individual landlords, not limited companies.
A limited company that owns a buy-to-let property can usually treat mortgage interest as a business expense before calculating taxable profit. That is one reason many landlords consider buying through a special purpose vehicle, often called an SPV.
However, buying through a limited company is not automatically better.
A company structure may help when:
- You plan to build a portfolio over time
- You want to retain profits for reinvestment
- You are a higher-rate taxpayer
- You are buying with a mortgage
- You want a clear investment structure
- You are not relying on all rental profit as personal income
But it may be less suitable when:
- You own only one property
- You need to draw all profits personally
- Mortgage pricing is higher than personal-name borrowing
- You already own the property personally and would need to transfer it
- Stamp duty, capital gains tax and legal costs make restructuring expensive
- You want a simple setup with less administration
Lockwell Finance supports landlords considering limited company and SPV buy-to-let applications. The right route depends on the property, deposit, rent, ownership goals, tax advice and lender criteria.
Discuss your buy-to-let structure
Section 24 and Remortgaging: Why Timing Matters
Many landlords only review Section 24 when their tax bill arrives. That is too late.
The better time to review the impact is before remortgaging, raising capital or buying another property.
When a fixed rate ends, your mortgage interest may increase. Under Section 24, that higher interest cost may not reduce taxable rental profit in the way landlords expect. The result can be a double squeeze:
- Higher monthly mortgage payments
- Higher taxable rental income compared with true cash profit
Before remortgaging, landlords should review:
- Current rent and achievable market rent
- Mortgage balance
- Product fees
- Interest-only versus repayment options
- Loan-to-value
- Expected tax position
- Ownership structure
- Whether the property still meets portfolio goals
Use the Mortgage Calculator to estimate repayments, then speak with Lockwell Finance to compare the numbers against realistic buy-to-let lending options.
Section 24 and Interest-Only Buy-to-Let Mortgages
Many buy-to-let landlords use interest-only mortgages because they support monthly cash flow. Section 24 does not stop landlords using interest-only borrowing, but it changes how the tax position feels.
With an interest-only BTL mortgage:
- Monthly payments are lower than repayment borrowing
- The loan balance does not reduce
- Mortgage interest remains a major cost
- Tax relief on finance costs is restricted for individual landlords
This can still work well for some landlords, especially where the property has strong yield or long-term capital growth potential. However, it means investors must model cash flow after tax, not just before tax.
A property with a low mortgage payment can still become inefficient if the landlord’s tax band makes Section 24 costly.
Section 24 and Repayment Buy-to-Let Mortgages
A repayment mortgage gradually reduces the loan balance. This may reduce future interest costs, but monthly payments are higher.
For some landlords, repayment borrowing can help reduce long-term exposure to Section 24 because the interest element falls over time. But it can also reduce short-term cash flow.
The decision between interest-only and repayment should consider:
- Monthly affordability
- Rental income
- Tax band
- Exit strategy
- Whether the property is for income or capital growth
- Whether you plan to refinance
- Your long-term portfolio objectives
There is no single best answer. A landlord who wants maximum monthly cash flow may prefer interest-only. A landlord who wants to reduce debt exposure may prefer repayment. The right structure should be selected after reviewing both lending and tax implications.
How Section 24 Can Push Landlords into a Higher Tax Band
One of the most misunderstood effects of Section 24 is that mortgage interest is not deducted before taxable rental income is calculated.
This can increase the figure shown as taxable property income, even where real cash profit is much lower.
For example:
- Employment income: £45,000
- Rental income after non-finance expenses: £12,000
- Mortgage interest: £7,000
- Real property cash profit before tax: £5,000
Before Section 24, the landlord may have expected only £5,000 of property profit to be added to income.
Under Section 24, £12,000 may be added before the finance cost tax credit is applied.
That can push part of the income into the higher-rate band, even though the landlord has not received £12,000 in real cash profit.
This is why Section 24 can affect people who do not think of themselves as “high-income landlords”.
What Finance Costs Are Affected?
Section 24 mainly affects finance costs linked to residential property letting.
These may include:
- Buy-to-let mortgage interest
- Interest on loans used to buy residential rental property
- Interest on loans used to improve residential rental property
- Some arrangement fees
- Certain finance charges
- Early repayment charges linked to property finance
Landlords can still deduct many non-finance expenses where they are wholly and exclusively for the property business.
These may include:
- Letting agent fees
- Repairs and maintenance
- Buildings insurance
- Ground rent and service charges
- Accountancy fees
- Safety certificates
- Replacement domestic items where eligible
- Advertising for tenants
The key difference is that finance costs are restricted, while many normal operating costs can still be deducted in the usual way.
Section 24 and Rental Yield: Why Gross Yield Is Not Enough
Many landlords still compare buy-to-let properties using gross yield.
Gross yield is useful, but it is not enough after Section 24.
A property with a 7% gross yield may look stronger than a property with a 5% gross yield. But the true result depends on:
- Mortgage rate
- Loan-to-value
- Tax band
- Repair costs
- Service charges
- Letting fees
- Vacancy risk
- Insurance
- Ownership structure
- Local rental demand
After Section 24, landlords should focus on net yield after finance and tax.
A simple review should ask:
- What is the rent?
- What are the realistic annual costs?
- What is the mortgage interest?
- What is the landlord’s tax band?
- What is the tax bill after Section 24?
- What cash is left after all costs?
- Does the property still justify the capital tied up?
If the answer is unclear, the mortgage structure needs reviewing before the investor commits.
Section 24 and Portfolio Landlords
For portfolio landlords, Section 24 can become more complex because the issue compounds across multiple properties.
One property may remain profitable. Five heavily mortgaged properties may create a different picture.
Portfolio landlords should review:
- Which properties are most exposed to high interest costs
- Which properties have weak rental cover
- Which properties have strong capital growth potential
- Which mortgages are due to expire soon
- Whether any properties should be refinanced, retained, sold or restructured
- Whether future purchases should be made personally or through a company
- Whether rental increases are realistic and compliant
- Whether portfolio cash flow remains strong after tax
A proper portfolio review should not only ask, “Can I borrow more?” It should ask, “Does the portfolio still work after tax, interest and lender stress testing?”
Lockwell Finance can support landlords with buy-to-let refinancing, portfolio reviews and lender selection.
Should Landlords Incorporate Because of Section 24?
Incorporation means moving property activity into a limited company structure. Many landlords explore this because limited companies are not affected by Section 24 in the same way.
However, incorporation is a major decision. It should not be treated as a quick fix.
Potential advantages:
- Mortgage interest may be deductible within the company
- Profits can be retained for reinvestment
- Corporation tax may be lower than personal income tax rates
- SPV structures are familiar to many buy-to-let lenders
- It can support long-term portfolio growth
Potential disadvantages:
- Existing properties may trigger stamp duty on transfer
- Capital gains tax may apply
- Legal and valuation costs can be significant
- Mortgage rates and fees may differ
- Accounts and administration are more involved
- Extracting profits personally may create further tax
- Not every lender accepts every structure
For new purchases, an SPV structure may be worth considering from the beginning. For existing personally owned properties, the numbers must be modelled carefully.
Landlords should take tax advice before restructuring ownership and mortgage advice before applying for finance.
Practical Ways Landlords Can Respond to Section 24
Section 24 cannot be ignored, but landlords do have options.
1. Review the mortgage before the fixed rate ends
Do not wait until the final month of your deal. Review options early so there is time to compare products, prepare documents and avoid unnecessary pressure.
2. Check whether the property still works after tax
A property may look profitable before tax but weak after Section 24. Review annual rent, expenses, mortgage interest and tax position together.
3. Consider whether a limited company is suitable for future purchases
New purchases may be easier to structure through an SPV from day one than existing properties are to transfer later.
4. Improve rental performance where legally and commercially appropriate
This may include reviewing market rent, improving the property, reducing void periods or upgrading the tenant profile.
5. Reduce unnecessary costs
Review insurance, management fees, maintenance planning and mortgage product fees. Small savings can improve net yield.
6. Avoid over-leveraging
Higher debt can increase exposure to Section 24. A lower loan-to-value may reduce interest cost and improve lender options.
7. Use specialist advice before expanding
Buying another property without reviewing Section 24 can make the whole portfolio less efficient.
Lockwell Finance works with landlords who want a clear, practical route rather than generic mortgage advice.
Section 24 and Lender Affordability Checks
Lenders do not all assess buy-to-let mortgages in the same way. They may consider:
- Expected monthly rent
- Interest coverage ratio
- Stress rate
- Loan-to-value
- Property type
- Borrower income
- Credit profile
- Ownership structure
- Portfolio size
- Whether the application is personal or limited company/SPV
Some lenders are more comfortable with portfolio landlords. Some are stronger for SPV cases. Some may be more flexible with property type, income background or refinancing purpose.
This is where broker guidance can make a difference. The right lender is not always the one with the lowest headline rate. It is the one whose criteria fit the deal.
For a wider view of what lenders usually check, read the Buy-to-Let Mortgage Checklist.
Section 24 and Stamp Duty Planning
Section 24 is not the only tax pressure on landlords. Stamp duty can also affect whether a purchase makes sense.
A landlord buying an additional residential property may face a higher upfront tax cost. If the purchase is made through a limited company, stamp duty treatment still needs to be factored into the numbers.
Before buying, landlords should model:
- Deposit
- Stamp duty
- Legal fees
- Valuation fees
- Mortgage arrangement fees
- Refurbishment costs
- Expected rent
- Void period allowance
- Tax impact
- Exit strategy
Use the Stamp Duty Calculator as a starting point, then review the full deal with a broker and tax adviser.
A Better Way to Assess a Section 24 BTL Mortgage Deal
A stronger buy-to-let review should include four layers.
Layer 1: Property performance
Ask whether the property is strong enough on its own.
- Is the rent realistic?
- Is demand stable?
- Are repairs predictable?
- Are service charges manageable?
- Is there long-term tenant demand?
Layer 2: Mortgage structure
Ask whether the finance supports the strategy.
- Is the rate competitive?
- Is the fee worth paying?
- Is interest-only or repayment more suitable?
- Is the loan-to-value sensible?
- Are early repayment charges acceptable?
Layer 3: Tax impact
Ask what remains after Section 24.
- What is the landlord’s tax band?
- How much mortgage interest is restricted?
- Could taxable income move into a higher band?
- Would future property income rates change the result?
- Should future purchases be personal or company-owned?
Layer 4: Portfolio strategy
Ask whether this property improves the wider plan.
- Does it strengthen or weaken cash flow?
- Does it create refinancing risk?
- Does it diversify the portfolio?
- Is the capital better used elsewhere?
- Is the ownership structure scalable?
This is the difference between buying a rental property and building a sustainable property investment strategy.
Common Section 24 Mistakes Landlords Should Avoid
Mistake 1: Looking only at monthly mortgage payments
A low monthly payment does not guarantee good after-tax profit.
Mistake 2: Assuming basic-rate landlords are never affected
A landlord can be pushed into a higher band because finance costs are not deducted before taxable income is calculated.
Mistake 3: Incorporating without modelling the full cost
Limited companies can help, but transfer taxes, mortgage pricing and profit extraction need careful review.
Mistake 4: Ignoring mortgage product fees
A lower rate with a large fee may not be the cheapest option over the deal period.
Mistake 5: Waiting until remortgage pressure builds
Early planning gives more lender choice and reduces the risk of accepting a poor product under time pressure.
Mistake 6: Treating every property the same
A high-yield HMO, a low-yield flat, a personally owned house and an SPV portfolio purchase may each need a different strategy.
When to Speak to Lockwell Finance
Speak to Lockwell Finance if:
- Your buy-to-let fixed rate is ending
- You are buying your first rental property
- You are considering an SPV or limited company purchase
- You already own personally held buy-to-let properties
- You want to release equity
- You are expanding a portfolio
- You are unsure whether a property still works after tax
- You need a lender that fits a more complex borrower profile
Lockwell Finance provides a clear, deal-led approach for landlords and investors. The team can help you understand lender requirements, compare finance routes and prepare a stronger application.
“Lockwell Finance were sharp, transparent, and genuinely focused on what would work for my deal. The process was clear from day one.”
— Hannah Clarke, Property Investor
“I appreciated how quickly they understood my portfolio and mapped out the right route. No jargon — just practical steps.”
— James Whitfield, Landlord & Portfolio Owner
Contact Lockwell Finance today
Frequently Asked Questions
What is Section 24 for buy-to-let landlords?
Section 24 is the rule that restricts mortgage interest relief for individual landlords with residential rental property. Instead of deducting mortgage interest from rental income before tax, landlords usually receive a basic-rate tax credit on eligible finance costs.
How does Section 24 affect a BTL mortgage?
Section 24 can reduce the after-tax profit from a buy-to-let mortgage because mortgage interest no longer reduces taxable rental income in the same way for individual landlords. This can particularly affect higher-rate taxpayers and landlords with large mortgages.
Can landlords still claim mortgage interest deduction?
Individual landlords can usually no longer deduct residential buy-to-let mortgage interest as a normal expense before calculating taxable profit. Instead, they receive a tax credit based on the basic rate. Limited companies are treated differently.
Does Section 24 apply to limited company buy-to-let?
Section 24 does not apply to limited companies in the same way it applies to individual landlords. A limited company can usually deduct mortgage interest as a business expense, but company ownership has other tax, lending and administration considerations.
Is a limited company better for avoiding Section 24?
A limited company can be more suitable for some landlords, especially higher-rate taxpayers building a portfolio and reinvesting profits. However, it is not automatically better. Mortgage rates, company costs, tax on profit extraction, stamp duty and capital gains tax must be reviewed.
Should I remortgage because of Section 24?
You should review your mortgage before your current deal ends, especially if rates have increased or your tax position has changed. A remortgage may improve cash flow, but the right option depends on rent, loan-to-value, tax band, ownership structure and lender criteria.
