Navigating Section 24: Solutions for Landlords to Maximise Mortgage Interest Deductions

As we move further along into the 2025/26 tax year, UK landlords continue to grapple with an increasingly volatile and unpredictable immediate future. Central among interest rate and inflation fluctuations and pending trade deals with the U.S. are the far-reaching implications of Section 24 of the Finance (No. 2) Act 2015.

At IWN Accountancy, we’ve observed first-hand how these restrictions on mortgage interest tax relief have transformed the financial landscape for property investors countrywide. With our specialised knowledge in property tax, portfolio structuring and accounts preparation, administration and optimisation, we’re committed to empowering landlords with the strategic insights needed to navigate these challenges effectively.

This guide explores the intricacies of Section 24 and outlines all you need to know regarding maximising mortgage interest relief for landlords.

What is Section 24?

Introduced by George Osborne in the July 2015 Budget, Section 24 fundamentally altered how landlords can claim tax relief on finance costs, including mortgage interest.

Before this legislation was introduced, landlords could deduct all of their finance costs from rental income before calculating their tax liabilities.

This was seen by many as a straightforward process that made property investment calculations relatively simple. Now, however, the situation is dramatically different.

Since the full implementation of Section 24 in April 2020, landlords can no longer deduct mortgage interest and other costs from their rental income when calculating taxable profit.

Instead, tax relief is restricted to a basic rate tax credit of 20%, regardless of the landlord’s income tax band.

How Section 24 Works

To illustrate the impact of Section 24, let’s examine a straightforward example of how it affects landlords.

Scenario:

  • Annual rental income: £20,000
  • Mortgage interest costs: £9,000
  • Other allowable expenses: £1,000
  • Employment income: £42,000

Pre-Section 24 Calculation:

  • Taxable rental profit: £10,000 (£20,000 – £9,000 – £1,000)
  • Total taxable income: £52,000 (£10,000 + £42,000)
  • Tax liability would be calculated on the taxable income of £52,000

Current Calculation (Post-Section 24):

  • Taxable rental profit: £19,000 (£20,000 – £1,000)
  • Total taxable income: £61,000 (£19,000 + £42,000)
  • A 20% tax credit is then applied to the £9,000 mortgage interest (£1,800)

The crucial difference is that under Section 24, your taxable income appears significantly higher (£61,000 vs £52,000), potentially pushing you into a higher tax bracket despite no actual increase in your real income, resulting in around £2,000 more in tax in this example.

For higher and additional rate taxpayers, this translates to a substantial reduction in effective tax relief on mortgage interest, from 40% or 45% to just 20%.

How Section 24 Affects Tax Relief for Landlords in the UK

Section 24’s effects vary considerably depending on a landlord’s circumstances and tax bracket.

Basic rate taxpayers

If your total income (including the inflated rental ‘profit’) remains within the basic rate tax band of 20% (currently between up to £50,270, which is where the 40% rate begins applying), Section 24 may not increase your tax liability.

However, the inflated taxable income figure could push previously basic-rate taxpayers into the higher rate band, triggering additional liabilities, even if their position has not changed.

Higher and additional rate taxpayers

The impact of Section 24 more profoundly affects landlords in higher tax brackets.

With relief effectively capped at 20%, higher-rate taxpayers lose 20% of their previous relief, while additional-rate taxpayers lose 25%.

This can mean properties that were once profitable under the old system could end up making losses. Section 24 can also trigger other financial liabilities, such as personal allowance losses for landlords whose income exceeds £100,000 or Child Benefit losses for those earning over £60,000, not to mention a reduced ability to make personal pension contributions in certain circumstances.

How Landlords Can Optimise Their Tax Position for Section 24

At IWN Accountancy, we believe in helping landlords develop a proactive strategy for maximising mortgage interest tax relief and deductions, rather than a reactive one.

Here are some recommendations that landlords might want to consider to lessen the damage of Section 24.

  1. Incorporate your portfolio

Limited companies aren’t subject to Section 24 restrictions, meaning they can deduct mortgage interest as a business expense before calculating Corporation Tax (which is currently 25% for profits above £50,000).

Incorporation tends to benefit landlords who are in higher tax brackets and who hold multiple properties in their portfolios. They can claim full mortgage interest relief against rental income and could find it preferable for inheritance tax planning purposes. However, other liability considerations like Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) must be considered, as well as mortgage interest rates for company borrowing.

  1. Deed of Trust (followed by Form 17)

Married couples or civil partners can restructure the arrangements of property ownership to maximise their tax relief, which is handy if one partner is in a lower tax bracket.

This process typically involves severing what is known as the ‘joint tenancy’ to become ‘tenants in common.’ After the legal work is completed, a Form 17 must be lodged with HMRC to outline the new beneficial ownership %.

  1. Partnerships (Ordinary or Limited Liability)

Partnerships can be considered where there is substance to a portfolio, constituting a ‘business,’ as outlined in HMRC Manual PIM1030 and Section 45 Partnership Act 1890.

For example, one partner can transfer some or all beneficial interest in properties to the lower-rate taxpayer, establish a formal partnership agreement with HMRC, and distribute income to agreed shares. However, before doing this, consent may be required from the mortgage lender, it must represent a genuine transfer of economic interest, and there may be SDLT implications of any transfers between partners (though CGT may be relieved through the spousal exemption).

  1. Reduce Debt Exposure

Obviously, if you have savings or capital available to use in reducing your exposure to debt, then this would reduce the burden of Section 24, though this option will clearly not be available to all.

Choose IWN Accountancy for Expert Tax Advice and Guidance

As chartered certified accountants for landlords, IWN Accountancy offers more than just tax compliance. We provide forward-thinking strategic guidance tailored to your unique property investment journey.

We combine in-depth knowledge of UK property tax laws and practical, real-world experience supporting landlords boasting properties of all sizes. This, coupled with our innovative tax planning ideas and strategies and our proactive approach and insights on upcoming regulatory changes, allows us to craft a strategy that will work for you, personally.

Section 24 no doubt presents significant challenges, but with the right strategy, UK landlords can continue to build profitable, sustainable property portfolios.

Contact our specialist property tax team today to arrange a personalised assessment and discover how we can help you maximise your remaining mortgage interest deductions.

 

This article is intended as general guidance only and should not be relied upon as professional advice. Tax regulations are complex and subject to change, and individual circumstances will affect the applicability of different strategies. We recommend seeking personalised advice before implementing any tax planning measures.