What is Section 24?
Section 24 of the Finance (No. 2) Act 2015 restricts deductions for finance costs of individual residential landlords. From April 2020 — after a four-year phase-in — qualifying finance costs are not deducted when calculating property profit. A basic-rate tax reduction may then apply, subject to statutory caps.
The result: finance costs no longer reduce the property profit used in the income-tax calculation. A basic-rate reduction may then apply, subject to statutory limits including finance costs, property-business profits and adjusted total income. Higher-rate tax can therefore arise on profit measured before mortgage interest.
Before vs after — the mechanics
| Step | Pre-2017 (old rules) | Post-2020 (Section 24) |
|---|---|---|
| Rental income | £18,000 | £18,000 |
| Mortgage interest | −£10,000 (deducted) | Not deducted |
| Taxable profit | £8,000 | £18,000 |
| Tax @ 40% | £3,200 | £7,200 |
| 20% credit on interest | — | −£2,000 |
| Net tax bill | £3,200 | £5,200 |
In this deliberately simplified example, the post-restriction figure is £2,000 higher. A real return also depends on other income, non-finance expenses, allowances, losses and the three tax-reduction caps.
Who does it hit hardest?
The restriction applies to qualifying finance costs of individual residential landlords. Companies are outside this Income Tax rule and may deduct qualifying finance costs when calculating company profit. The following isolates the rate effect and is not a full tax computation:
Basic-rate taxpayers may see the 20% reduction broadly match their rate, but that is not guaranteed because the reduction is capped and unused finance costs may need to be carried forward. Property profit before finance costs can also affect tax bands and the Personal Allowance.
Personal landlord vs Ltd Co
Personal ownership
- Section 24 applies — capped basic-rate reduction
- Income taxed at 20%, 40% or 45%
- No acquisition SDLT merely for continuing to hold
- Simpler admin, no Corp Tax return
- CGT on sale: 18% / 24% (residential)
- Property losses generally carry forward against future profits of the same property business
Limited company
- Qualifying interest generally deductible for Corporation Tax
- Corporation Tax: 19% small-profits rate, 25% main rate, marginal relief between
- Transfer-in SDLT is transaction-specific
- Annual accounts + CT600 required
- CGT on sale: Corp Tax rate, not CGT
- Profits extracted via salary/dividend
The incorporation trap
Moving existing properties into a limited company is a disposal for tax purposes and connected-party market-value rules may apply. CGT, SDLT, refinancing and professional costs depend on ownership, partnership status, consideration, debt and any reliefs; they must be established for the actual transaction.
Incorporation Relief under TCGA 1992 s162 has detailed business, whole-business, asset-transfer and consideration conditions. Property portfolios require fact-specific advice; property count alone is not a test.
What should a company comparison include?
Model the same property and financing under both structures, including applicable purchase tax, mortgage rate and fees, Corporation Tax across the relevant profit range, accounting, salary or dividends, retained profit, exit tax and estate-planning objectives. Buying directly in a company avoids a later transfer of that property, but does not avoid the original acquisition costs.
Section 24 can materially change taxable property profit, but it does not determine the correct ownership structure by itself. Compare complete personal and company tax positions and obtain specialist advice before transferring property or changing finance.