Ask a room full of landlords what killed the golden age of buy-to-let and most will say the same two words: Section 24. It is the change that stopped individual landlords deducting their mortgage interest as a normal business expense. But the rule is widely misunderstood, and "buy-to-let is dead" is far too blunt a conclusion. Whether your property still works depends on numbers you can actually check.
What Section 24 actually changed
Before April 2017, a landlord holding property in their own name deducted mortgage interest from rental income before working out the tax bill. If you took £12,000 in rent and paid £6,000 in mortgage interest, you were taxed on £6,000 of profit.
Section 24 of the Finance Act 2015 phased that out between 2017 and 2020. Since April 2020, individual landlords can no longer deduct interest at all. Instead you are taxed on the full rental income, then given a tax credit worth 20% of the interest to knock off the final bill.
For a basic-rate taxpayer, the maths lands in almost the same place. For a higher-rate taxpayer it does not, because you are effectively getting relief at 20% on interest that used to be relieved at 40%.
A worked example
Take a landlord with £12,000 of annual rent, £6,000 of mortgage interest and £1,000 of other allowable costs.
| Old rules (pre-2017) | Section 24 (today) | |
|---|---|---|
| Rent | £12,000 | £12,000 |
| Interest deducted | £6,000 | £0 |
| Other costs | £1,000 | £1,000 |
| Taxable profit | £5,000 | £11,000 |
| Tax at 40% | £2,000 | £4,400 |
| Less 20% interest credit | £0 | −£1,200 |
| Tax due | £2,000 | £3,200 |
Same property, same rent, same mortgage. The higher-rate landlord now pays £1,200 more tax a year purely because of how the interest is treated. Our Section 24 tax calculator runs this comparison on your own figures in a few seconds.
The trap nobody warns you about
Here is the part that catches people out. Because your full rent is now added to your income before the credit, Section 24 can inflate your "income" on paper. That can:
- Tip a basic-rate landlord into the higher-rate band.
- Drag you over £100,000, where the personal allowance tapers away.
- Trigger the High Income Child Benefit Charge.
So a landlord who feels like a basic-rate taxpayer can still be stung, even though the headline 20% credit looks like it should protect them. The only way to know is to model your total income, not just the rental profit in isolation.
So is it still worth it?
For a lot of properties, yes. Section 24 hurts most when three things line up: you are a higher-rate taxpayer, you hold the property personally, and the mortgage is large relative to the rent. Weaken any one of those and the picture improves.
Ask yourself:
- What is my real net yield? Rent minus all running costs, as a percentage of what the property is worth. If that number is healthy, the deal can absorb the extra tax.
- How geared am I? A property with a small mortgage barely feels Section 24 at all, because there is little interest to restrict.
- What is my marginal tax rate? A basic-rate landlord is largely unaffected. The pain is concentrated at 40% and above.
If the answers are uncomfortable, that does not automatically mean sell. It means the structure might be wrong rather than the asset.
The limited-company question
The most common response to Section 24 is to hold property through a limited company, because a company still deducts mortgage interest in full against corporation tax. That can be a big saving for a highly-geared higher-rate landlord.
It is not a free win, though. A company brings extra costs: annual accounts, higher mortgage rates on limited-company products, and tax again when you draw the profit out as dividends. Moving an existing personal property into a company also counts as a sale, which can trigger capital gains tax and a second stamp duty bill.
The honest answer is "it depends on your numbers", which is exactly why we built the limited company vs personal comparison. Put in your rent, interest and tax band and it shows both structures side by side, so you are deciding on maths rather than pub wisdom.
The bottom line
Section 24 did not end buy-to-let. It ended lazy buy-to-let, where any leveraged property in a higher-rate name was assumed to make money. The landlords doing well today know their net yield, their gearing and their marginal rate, and they check the tax before they buy rather than at the end of the year.
Run your own figures, look at the personal-versus-company split, and decide with numbers in front of you. A property that looks marginal on a spreadsheet is a far better problem to have than one that surprises you in January.
