Section 24

Section 24 refers to Section 24 of the Finance (No. 2) Act 2015, which fundamentally changed how individual landlords are taxed on rental income where they have a mortgage. Before Section 24, landlords could deduct mortgage interest in full from their rental income before calculating their tax bill. Section 24 removed that deduction and replaced it with a basic-rate tax credit worth 20% of finance costs. It was phased in between 2017 and 2020 and now applies in full.

What Section 24 means in practice

Under the old rules, a landlord with £15,000 annual rent and £6,000 mortgage interest would be taxed on £9,000 of profit. Under Section 24, they are taxed on the full £15,000 of rental profit (after other allowable expenses but before mortgage interest), and then receive a tax credit of 20% of the £6,000 interest, that is £1,200 off their tax bill.

For a basic-rate taxpayer, the net effect is broadly neutral. For a higher-rate taxpayer, the impact is material: they pay 40% tax on rental profit that includes the portion covered by mortgage interest, but only recover 20% of that interest as a credit. An additional-rate taxpayer paying 45% is harder hit still. The result is that some landlords with mortgaged buy-to-letproperties now pay tax on a profit figure that exceeds their actual cash surplus — or in some cases pay tax while making a cash loss.

Who Section 24 applies to

Section 24 applies to individual landlords, for sole traders and those in partnerships, who own residential rental property with a mortgage. It does not apply to landlords who own property through a limited company, which is one reason incorporation has become more common since 2017. It also does not apply to furnished holiday lets that qualified under the old FHL rules, though those rules have now been abolished. Commercial property is not affected.

Section 24 and Making Tax Digital

For landlords approaching the MTD thresholds, understanding the Section 24 position is important before the quarterly reporting regime begins. Rental profit as reported under MTD is calculated before the mortgage interest credit, which is applied at the final declaration stage. August's rental income tax calculator handles the Section 24 credit correctly and shows the difference between profit before and after the credit.

A note on Section 24 in Scotland

In Scottish property law, "Section 24" can also refer to a notice under Section 24 of the Conveyancing and Feudal Reform (Scotland) Act 1970, which a lender sends when beginning mortgage repossession proceedings. This is an entirely separate legal mechanism and is unrelated to the landlord tax rules described above. If you have received a Section 24 notice in Scotland in the context of a mortgage, you should seek independent legal advice immediately, it signals that court proceedings have been initiated.

Also read our landlord blog articles on: