Section 24 Explained: The Landlord Tax Changes (Buy-to-Let Mortgage Interest Rules)

Section 24 is one of the most significant tax changes affecting private landlords in England and Wales in recent years.

It changed how landlords can claim tax relief on mortgage interest for residential rental properties. The result? Many landlords now pay tax on their turnover, not just their profit.

This guide explains what Section 24 is, how it works, who it affects, and why it matters to renters.

What Is Section 24?

Section 24 refers to changes introduced in the Finance (No. 2) Act 2015.

Before these changes, landlords could deduct 100% of their mortgage interest and finance costs from rental income before calculating tax.

After Section 24, most individual landlords can no longer deduct mortgage interest in full. Instead, they receive a basic-rate (20%) tax credit on those finance costs.

How the System Worked Before Section 24

Under the old rules:

  1. Rental income

  2. Minus mortgage interest

  3. Minus allowable expenses

  4. = Taxable profit

Landlords paid tax only on the true profit.

How It Works Now

Under Section 24:

  1. Rental income

  2. Minus allowable expenses (but NOT mortgage interest)

  3. = Taxable profit

  4. Landlord pays income tax on that figure

  5. Then receives a 20% tax credit on mortgage interest

This matters most for higher-rate and additional-rate taxpayers.

When Did Section 24 Start?

The changes were phased in between:

  • April 2017

  • April 2020

Since April 2020, the rules are fully in effect.

Example: Basic Illustration

Rental income: £20,000
Mortgage interest: £12,000
Other expenses: £3,000

Before Section 24:

£20,000 – £12,000 – £3,000 = £5,000 taxable profit

After Section 24:

£20,000 – £3,000 = £17,000 taxable profit

Tax is calculated on £17,000.
Then a 20% credit is applied to the £12,000 interest.

If the landlord is a higher-rate taxpayer (40%), the tax bill is significantly higher than under the old system.

Who Is Affected?

Section 24 applies to:

  • Individual landlords

  • Joint individual landlords

  • Buy-to-let mortgage holders

  • Accidental landlords (e.g. renting out former homes)

It does NOT apply to:

  • Limited companies

  • Corporate landlords

  • Furnished holiday lets (under separate rules)

Impact on Landlords

Section 24 can:

  • Push landlords into higher tax bands

  • Reduce or eliminate net profit

  • Create “paper profits” where tax is due despite low real income

  • Affect mortgage affordability tests

  • Make some properties financially unviable

This is especially significant in a high interest rate environment.

Impact on Renters

While Section 24 is a landlord tax rule, it indirectly affects renters because:

  • Some landlords have exited the market

  • Others have restructured into limited companies

  • Some have increased rents to maintain margins

However, rent levels are influenced by many factors including supply, demand, and local markets.

Why Section 24 Was Introduced

The government stated the aim was to:

  • Reduce tax advantages for leveraged landlords

  • Level the playing field between homeowners and investors

  • Cool investor demand in the housing market

It also increased tax revenue from the private rented sector.

Why Section 24 Is Controversial

Critics argue that Section 24:

  • Taxes landlords on turnover, not profit

  • Pushes smaller landlords out of the market

  • Encourages incorporation into limited companies

  • Contributes to rent increases

Supporters argue that:

  • It reduces speculative property investment

  • It discourages excessive borrowing

  • It supports first-time buyers

Planning Responses Landlords Have Used

Some landlords have responded by:

  • Incorporating into limited companies

  • Paying down mortgage debt

  • Increasing rents

  • Selling properties

  • Switching to short-term or holiday lets

Each option has tax and legal consequences.

Section 24 and the Current Rental Market

Section 24 is often discussed alongside:

  • Rising mortgage rates

  • The Renters’ Rights Act reforms

  • Increased regulation of landlords

Together, these changes are reshaping the private rented sector.

Key Takeaways

  • Section 24 changed how mortgage interest tax relief works.

  • Individual landlords now receive a 20% tax credit instead of full deduction.

  • Higher-rate taxpayers are most affected.

  • It has had structural effects on the rental market.