Section 24 of the Finance Act 2015 — known variously as the landlord tax, the mortgage interest restriction, and various less printable names among affected landlords — fundamentally changed the tax treatment of buy-to-let property in the UK. It is now fully phased in and applies in its final form. If you are a landlord and you have a mortgage on any rental property, Section 24 affects your tax bill.
How it worked before Section 24
Before Section 24 was phased in between 2017 and 2020, landlords could deduct their full mortgage interest from their rental income before calculating their taxable profit. The logic was straightforward: interest is a genuine cost of running the rental business, so it should be deductible like any other cost.
A landlord earning £18,000 in rent and paying £12,000 in mortgage interest had taxable rental profit of £6,000. At 40% income tax, the tax bill was £2,400.
How it works under Section 24
Under Section 24, mortgage interest is no longer deductible from rental income. Instead, landlords receive a tax credit equal to 20% of the mortgage interest paid. The calculation now looks like this: rental income of £18,000 minus allowable costs (repairs, letting agent fees, etc.) but not mortgage interest. If costs other than interest are £2,000, taxable profit is £16,000. At 40%, the income tax is £6,400. Then subtract the 20% mortgage interest tax credit: 20% of £12,000 = £2,400. Net tax bill: £4,000.
Compare that to the pre-Section 24 bill of £2,400. The same landlord, with the same property, the same rent and the same mortgage is now paying £1,600 more per year in tax — on income that looks the same on paper but after tax is materially worse.
Who is worst affected
Section 24 is neutral for basic-rate (20%) taxpayers — the tax credit equals what deductibility would have provided. It is damaging for higher-rate (40%) and additional-rate (45%) taxpayers — which covers a large proportion of landlords, particularly those with multiple properties or high salaries from employment.
The effect is most severe for landlords with high loan-to-value mortgages at current interest rates, where the financing cost is a large proportion of rental income. It can push landlords who appear to be generating a profit into a position where they are paying tax on income that does not exist after the mortgage is paid.
The limited company route
Many landlords who have expanded their portfolios since 2020 have done so through limited companies, where mortgage interest remains fully deductible as a business expense. Corporation tax applies to profits (currently 25% for companies with profits above £250,000), and dividends are taxed when extracted — but for higher-rate taxpayers, the combined rate is often lower than personal income tax under Section 24.
Transferring existing personally-held properties into a limited company triggers a CGT disposal and stamp duty, which often makes it uneconomical. The limited company route is most valuable for landlords building new portfolios from scratch.
The CGT trap
Many landlords find themselves in what amounts to a financial trap: the economics of holding have worsened under Section 24, but selling crystallises a capital gains tax bill that may have been building for 10, 15, or 20 years. CGT on residential property is 24% for higher-rate taxpayers. On a property bought for £120,000 and now worth £380,000, the gain is £260,000. The CGT bill is £62,400. For many landlords, the prospect of that bill is enough to keep them holding a deteriorating investment rather than redeploying capital.
EIS CGT deferral relief is specifically designed to address this trap. It does not eliminate the gain — it defers the CGT by investing the sale proceeds into EIS. This gives landlords a path out of deteriorating property positions without writing a large cheque to HMRC immediately.