Section 24 Explained
Mortgage interest tax relief
What is Section 24?
Section 24 of the Finance Act 2015 changed how landlords are taxed on rental income. Before April 2017, landlords could deduct all mortgage interest from rental income before calculating tax. Now, landlords are taxed on gross rental income with only a 20% basic rate tax credit for finance costs.
How It Works
Before Section 24 (pre-2017):
- Rental income: £20,000
- Mortgage interest: £10,000
- Taxable rental profit: £10,000
- Tax (at 40%): £4,000
After Section 24 (now):
- Rental income: £20,000
- Taxable rental income: £20,000
- Tax (at 40%): £8,000
- Less 20% tax credit on finance costs: £2,000
- Net tax payable: £6,000
This represents a 50% increase in tax for higher-rate taxpayers in this example.
Who is Affected?
Section 24 applies to:
- Individual landlords (sole traders)
- Landlords operating through partnerships
- Trustees of rental property trusts
- UK and overseas landlords with UK rental property
It does not apply to:
- Properties owned through a limited company
- Commercial property landlords
The Tax Bracket Problem
Section 24 can push landlords into higher tax brackets. Because you're taxed on gross rental income, your total taxable income increases, potentially moving you from basic rate (20%) to higher rate (40%) or even additional rate (45%). This can also affect child benefit eligibility and personal allowance.
Need Help With Section 24?
Section 24 continues to affect landlord profitability. While we can explain how it works, we recommend consulting a specialist property accountant for tax planning advice. Get in touch to learn more.