What are the ‘Section 24’ Tax Changes? 

The Section 24 tax changes restrict tax relief for finance costs secured by private landlords on residential properties to the basic rate of Income Tax. The changes were initially announced by George Osborne in the Conservative government’s summer budget of 2015.

In order to give buy to let landlords time to adapt to the removal of finance costs as a tax-allowable expense, the changes have been phased in over 4 years since 6 April 2017.


The following table displays the phasing in period of Section 24 for residential landlords:

Tax Year Deductible % of finance costs Basic rate tax reduction
2017 to 2018 75% 25%
2018 to 2019 50% 50%
2019 to 2020 25% 75%
2020 to 2021 0% 100%


In summary: Residential buy-to-let Landlords are no longer able to deduct their finance costs from their property income to arrive at their taxable property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.


Will Section 24 Impact my Property Business?

The good news for basic rate tax payers is that as long as the changes do not make you a higher rate tax payer, you will not lose out financially (at least not as an immediate result of the tax changes). This is because you will be paying income tax at 20%, and receiving a tax credit at 20% on the finance costs – so no additional tax will be due.

If however you are already a higher rate tax payer, then each pound of interest you pay will attract at least an extra 20p in tax, and landlords should take this into account when considering any property deals.

Whatever your current tax-payer status, it is important that you forecast what the changes will mean for you. It is not uncommon for landlords to be propelled through the tax brackets as a result of Section 24. It is even possible to go from being a basic rate tax payer to an advanced rate tax payer as this example of a landlord whose taxable profit rose by 400% demonstrates.

How will Section 24 impact cashflow?

Visualisation of the Tax Escalator Effect casued by Section 24: Tax Payments ‘catching up’

There is concern that many landlords have not been quick enough to react to Section 24 and will face a coming cashflow crisis over the next two years. This is to do with how the UK tax system operates.

As you can see from the graph, 2022 is the worst year from a cashflow perspective. This is because it takes a while for the tax payments to ‘catch up’ with the actual tax bills.

You can read about this in more detail in our article and case study: Section 24, Landlords and Tax Payments on Account: The worst is yet to come

What counts as ‘Finance Costs’ in Section 24?

For the purpose of defining how Section 24 impacts residential landlords, ‘Finance costs’ include:

  • Mortgage interest
  • Interest on loans to buy furnishings
  • Fees incurred when taking out or repaying mortgages or loans

Finally, just for clarity, tax relief is not usually available for capital repayments of a mortgage or loan, and the tax credit only applies to the recently disallowed finance costs – and not capital repayments.


Will Section 24 ever be repealed?

It is possible and some believe that it is quite likely, as it has previously been in place in other countries and then reversed. For example, Ireland implemented similar measures from 2009, but began a process of extending relief again to landlords from 2017. In Ireland the amount of interest you can deduct on residential mortgages has now increased back to 100% as 5% increments beginning in 2017 were expedited from January 2019.

Mortgage Interest Relief in Ireland:

  • Prior to 2017, 75% of the interest
  • In 2017, 80% of the interest
  • In 2018, 85% of the interest
  • From January 2019, 100% of the interest

Whilst we think Section 24 may be repealed at some point in the future, it is unlikely to be during the current government term. You can hear from LT4L Co Founder and Group Director Chris Bailey on this topic in his interview with property tribes: “Are HMRC Finished with Landlords?” – Interview with Chris Bailey

Why is the Section 24 Tax Credit a ‘Maximum’ of 20%?

It is a maximum because in some circumstances you could otherwise stand to make money from the tax changes. To counter this there is legislation in place so that you cannot be ‘better off’.

For example, if 20% of your finance costs equalled £2000, but the tax changes actually only increased your tax bill by £1500, then you would stand to make £500 at the expense of HMRC and your fellow tax-payers if a £2000 tax credit was applied. To prevent this, the legislation is in place so that you would instead receive just a £1500 tax credit in this example.

What is the impact of Section 24?

Buy to Let Landlords typically take out mortgages (debt) either on individual properties within their portfolio or across their portfolio as a whole. This enables them to leverage their capital to greater effect – usually in order to buy more property or invest in improvements – then they would have been able to otherwise. Section 24 makes this more difficult.

In addition, many landlords have also relied on capital growth to fund lifestyle expenses through remortgaging. Section 24 as well as changes to the Prudential Regulation Authority’s rules that now require lenders to run stress tests and treat portfolio landlords as any other business have made this method of lifestyle funding more challenging.

As a result of the changes there is early evidence that the private rented sector is consolidating under a smaller number of landlords, with some landlords leaving the market and others taking advantage of the available opportunities to increase their portfolio.

You can learn more about the impact of Section 24 in our short video on the market impact of Section 24 before Covid-19 & Tax planning in 2020/21:


Are Landlords Taxed on Turnover?

It is standard practice for businesses to be able to deduct interest on loans as a legitimate business expense prior to calculating their tax liabilities. Section 24 changes this for private landlords who own properties in their own names or via a partnership. This has led to the accusation that landlords are now being ‘taxed on turnover – not profit’. Perhaps a more accurate assessment is that landlords are now being taxed on a ‘fantasy profit’.

Does Section 24 affect Companies?

Limited companies holding residential property are currently still able to claim finance costs as an allowable expense. Sole Traders and Partnerships, including Limited Liability Partnerships (LLPs) however are all impacted by the Section 24 tax changes. In some circumstances a Limited Liability Partnership can be connected with a Limited Company with the net result being that the interest is effectively deductible. This type of business planning is commonly referred to as a Hybrid Business Structure or Mixed Partnership LLP and can enable property owners to maximise the commercial benefits of building running and growing a recognised professional property business.

Why is Section 24 called Section 24?

Section 24 takes its name from the legislation that was amended to implement the tax changes – namely Section 24 of the Finance (No. 2) Act 2015.

It is often abbreviated to ‘S24’, and may also be seen referred to as the ‘Tenant Tax.’ This is because many are concerned that ultimately the cost will be born by the tenant, as much as by their landlord.

Why does Section 24 exist?

The Government Claimed:

  • Buy-To-Let (BTL) investors got an unfair advantage of financial assistance over owner occupiers for their mortgage.
  • The new rules would make more homes available for residential buyers, especially first time buyers.
  • Reforming mortgage tax relief on BTL mortgages, it was claimed, would dampen speculation in the housing sector.
  • The Bank Of England said they were concerned that if house prices were to fall, landlords selling properties to exit the sector or consolidate their position could exacerbate the decline.
  • The Government want’s to professionalise the industry


What action has the landlord industry taken against Section 24?

Landlords represented by Cherie Booth QC launched a legal battle that failed to instigate a Judicial review of the changes.

How might Section 24 be hurting your Property Business?

Section 24 can impact you and your property business in many adverse ways. Here are just some examples:

  • Your profits have been inflated
  • You’ve been pushed into a higher rate tax bracket
  • You’ve had a much larger tax bill
  • You know your tax bills are increasing each year and you don’t know how to plan for them, so you have heightened uncertainty in your business
  • It’s impacting on your cash flow
  • Your plans to grow your property portfolio have had to go on hold
  • You’ve had to sell a property to pay your tax bill
  • You’ve had to sell another property to pay the CGT bill on the one you’ve just sold
  • Your retirement plans are at risk
  • You’re spending more time doing things yourself simply to save money

How can Less Tax 4 Landlords help landlords with a Section 24 problem?

By taking our professional advice, you could enjoy:

  • No need to remortgage or change title (thus no CGT or Stamp Duty)
  • A lender-friendly business structure suited to your needs
  • Seamless succession planning and protection from marital break-up

Plus, depending on your business requirements;

  • Full relief for finance & mortgage costs (Section 24 Tax Changes)
  • Reduced Capital Gains Tax (CGT) on Portfolio Reinvestment
  • Inheritance Tax typically mitigated within 2 years of trading
  • Maximum Tax Rate of 20% payable on your property income

We work with landlords looking to build professional businesses and in fact, by working with us over the long term, and providing it fits with your goals and aspirations, we would expect you to significantly increase your business profits. The result? More money in your pocket, and more tax paid – not less!