What is Section 24? A guide for landlords

The restriction of buy-to-let mortgage tax relief, also known as Section 24, is a tax change that has impacted many landlords.

When Section 24 was first announced, it was predicted that some buy-to-let landlords would sell their properties causing average rents to increase.

Many landlords that decided to stay in the market transferred the ownership of their property to a limited company to reduce their tax bill.

Read on to find out how Section 24 works and the impact it’s had on the rental market.

What is Section 24?

In 2015, then-Chancellor George Osbourne introduced a restriction on tax relief on buy-to-let mortgages. This controversial tax change is known as Section 24.

Since the introduction of Section 24, all of the rental income made from a property is taxed. This includes:

mortgage interest
mortgage arrangement fees
early repayment fees
interest on loans used to renovate a property

Landlords can claim back mortgage interest and other financial costs but only up to the basic income tax rate of 20 per cent. The changes were rolled out from 2017 and came into full effect in April 2020.

Before the first stage of the tax changes in 2017, landlords could deduct all of their mortgage interest from their rental income and pay tax solely on their profits.

But Between April 2017 and April 2020, mortgage interest tax relief was gradually reduced and ultimately replaced with a 20 per cent tax credit.

Why was Section 24 introduced?

Section 24 was part of the Conservative government’s plan to slow down the growth of the private rental sector.

It was part of a broader strategy to ‘level the playing field’ between buy-to-let landlords and first-time buyers.

It also included a stamp duty surcharge for buyers of second properties.

How have landlords responded?

Ever since it was announced, Section 24 has been extremely unpopular with buy-to-let landlords. It’s affected how much profit they make from their properties and left many paying much higher taxes.

Analysis from estate agency Hamptons shows the financial impact of Section 24 on landlords with a mortgage.

Before the tax changes were introduced, a higher rate taxpayer who received £1,000 a month in rental income and paid £500 a month in mortgage interest would have paid 40 per cent tax (£2,400) on their £6,000 profit.

After the tax changes, the landlord would only receive a 20 per cent credit of £1,200 to deduct from their profit. This would leave them with a tax bill of £3,600 – a 50 per cent rise.

There have been several attempts to reverse Section 24, including a high-profile legal challenge led by Cherie Blair in 2016 and several petitions.

But despite all the challenges, the Conservative government stood by its decision. In response to a 2022 petition, a government spokesperson said:

“The government will continue to set mortgage interest relief against rental income at the basic rate of tax. The government has a responsibility to make sure the income tax system is fair.”

The current Labour government has no plans to change Section 24.

The impact of Section 24 on landlords

Over recent years, many landlords have taken steps to minimise the impact of the Section 24 tax changes.

Some have chosen to work around it by remortgaging for a more competitive rate, while others have transferred ownership to their partner to avoid paying additional tax.

The most popular strategy has been to transfer ownership of a property to a limited company, while some landlords have opted to leave the market altogether.

Transferring property ownership to limited companies

One way landlords have looked to minimise the impact of the restriction of mortgage interest tax relief is to transfer ownership of their property to a limited company.

Landlords who incorporate their portfolio pay corporation tax instead of income tax, meaning they don’t pay more tax due to Section 24 and benefit from several other tax incentives.

Companies House data, analysed by Hamptons, shows a rising trend in incorporating buy-to-let companies in recent years:

Year	New buy-to-let companies
2019	32,109
2020	41,700
2021	47,400
2022	48,540
2023	50,004

Companies House data, analysed by Hamptons

There’s also been a surge in the number of buy-to-let mortgage products suitable for limited company landlords to reflect demand.

Further analysis from Hamptons shows that between the beginning of 2016 and the end of 2020, more companies were set up to hold buy-to-let properties than in the previous 50 years combined.

By September 2024, there were over 380,000 buy-to-let companies in the UK, up from around 200,000 in mid-2020.

During the first three quarters of 2024, 70 per cent of new buy-to-let purchases in England and Wales were made using a limited company.

Selling up and leaving the buy-to-let market

For some landlords, selling up and leaving the buy-to-let market was the most cost-effective option. Especially landlords with one or two properties as they’re more likely to be pushed into paying a higher tax rate than landlords with larger portfolios.

The Simply Business 2024 Landlord Report found that the impact of Section 24 remains one of the greatest challenges for a third of landlords (33 per cent).

Our survey also found that more than one in 10 (13 per cent) had sold a property in the last 12 months and 29 per cent were planning to sell a property by autumn 2025.

Even though landlords selling could be due to a range of factors, the increased costs brought about by Section 24 have hit the profits of many.

“Due to the withdrawal of buy-to-let mortgage interest tax relief, I’m now paying tax as a higher rate taxpayer on the property which is greater than the net profit.”

Landlord, North England

Raising tenants’ rent

Section 24 has put pressure on landlords’ finances and it’s potentially had a knock-on effect on tenants’ rent.

The table below shows the average national asking rent (excluding Greater London) tracked across six years by Rightmove.

Year	Asking rent
Q4 2016	£771
Q4 2017	£777
Q4 2018	£798
Q4 2019	£817
Q4 2020	£972
Q4 2021	£1,068
Q4 2022	£1,172
Q4 2023	£1,280

Rightmove data

Average rents increased significantly between 2017 and the end of 2021, by which time mortgage interest tax relief had been reduced in full.

And this figure has kept on rising, with Rightmove’s national average asking rent reaching £1,280 by Q4 2023.

It’s important to note that Section 24 is likely to have been one of many contributing factors to higher rents, such as:

changes to stamp duty and capital gains tax
new regulation such as the Renters’ Rights Bill
high tenant demand and low housing stock

“Increased interest rates, tax relief changes, repairs, and potential energy efficiency measures have made being a landlord unprofitable.”

Landlord, East Midlands

How have you been affected by Section 24? Let us know in the comments below.

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