A Guide to Section 24 Tax Change For Buy-to-Let Investors

Section 24 of the Finance Act 2015 fundamentally changed how UK landlords are taxed on their buy-to-let properties. Since coming into full effect in April 2020, these tax changes have significantly reduced mortgage interest relief for landlords, increasing tax bills across the sector, particularly for higher-rate taxpayers.

In this comprehensive guide, we explain everything you need to know about Section 24 tax, including how it works, who it affects, and what practical steps landlords can take to manage increased tax liability in 2025.

What Is Section 24?

The Section 24 tax change restricts the amount of tax relief landlords can claim on mortgage interest and other finance costs. Before these changes, landlords could deduct 100% of their mortgage interest payments from rental income before calculating tax. Now, landlords must pay tax on their full rental income and can only claim back a 20% basic rate tax credit on mortgage interest, regardless of whether they're a basic, higher, or additional rate taxpayer.

The rules were phased in gradually:

• 2017/18: 75% of finance costs deductible, 25% as basic rate tax credit
• 2018/19: 50% deductible, 50% as tax credit
• 2019/20: 25% deductible, 75% as tax credit
• 2020/21 onwards: 0% deductible, 100% as 20% tax credit

Why Were The Section 24 Reforms Introduced?

The government introduced Section 24 with several objectives:

• To cool the buy-to-let property market and reduce competition for first-time buyers
• To remove perceived tax advantages that landlords had over owner-occupiers
• To raise additional tax revenue from higher-income property investors

Former Chancellor George Osborne argued that allowing landlords to offset mortgage interest gave them an unfair advantage in the housing market. Despite widespread opposition from landlord groups, the legislation passed and remains in effect under the current Labour government, with no planned changes as of November 2025.

Who Is Affected By Section 24?

The Section 24 tax changes apply to all residential buy-to-let landlords if they are one of the following:

• A UK resident who lets properties overseas or in the UK.
• An individual who lets residential properties in a partnership, a trustee, or beneficiary of a trust and is liable for UK income tax on those residential rental properties.
• A non-UK resident who lets residential property within the UK.

The section 24 tax relief changes do not at this time apply to holiday rentals, commercial properties, or residential property owned by a registered company.

What Expenses Are And Aren’t Allowable Under Section 24?

Buy-to-let landlords are still allowed to deduct from their gross rent the allowable expenses, meaning expenses such as maintenance costs, can still be deducted from the gross rent and tax only needs to be paid on the rental income after that deduction.

A few allowable expenses include:

• letting agencies and property management fees,
• utility bills, and council tax
• fees for services, such as cleaning and gardening
• maintenance and repair costs that return the property or an item within the property to its original condition but does not make an improvement to it.

Relief on the following costs is now restricted and payments, cannot be deducted when calculating taxable profit. Instead, a percentage can be claimed back after the taxable profit has been worked out.

• mortgage interest,
• the interest on loans taken out to furnish your property,
• interest on overdrafts administration and other incidental costs associated with taking out or paying a mortgage or other alternative financial terms.

As you can see Section 24 affects most financing repayment claims, rather than ongoing property maintenance and management costs.

Related: Landlord Loopholes: 5 Ways To Reduce Buy-to-Let Property Tax

How to Calculate Section 24 Tax: Worked Examples

Essentially, under the Section 24 rules, landlords will need to pay income tax on almost all of their earnings from the property and then claim back a 20% of that interest as a tax relief.

Understanding how Section 24 affects your actual tax bill is crucial for landlords. Here's how the calculation works in practice, with before-and-after comparisons showing the real financial impact.

Section 24 Calculation: Basic Example

Let's start with a straightforward scenario:

Your rental situation:

• Annual rental income: £18,000
• Annual mortgage interest: £6,000
• Other allowable expenses: £2,000 (insurance, repairs, etc.)
• Your other income: £30,000 (salary/pension)

Before Section 24 (Pre-2020 Rules)

After Section 24 (Post-2020 Rules)

Result: In this scenario, you're still a basic-rate taxpayer so Section 24 doesn't increase your tax bill.

The Higher-Rate Taxpayer Problem

The Section 24 tax change hits hardest when it pushes you into a higher tax bracket. Here's where the real damage occurs:

Your rental situation:

• Annual rental income: £30,000
• Annual mortgage interest: £15,000
• Other allowable expenses: £3,000
• Your other income: £45,000 (salary)

Before Section 24‍

‍After Section 24

Result: Your tax bill has increased by £600 per year (from £2,400 to £3,000). A 25% increase.

The higher-rate problem: Your total taxable income jumped from £57,000 to £72,000, pushing £21,730 more into the 40% tax bracket instead of just £6,730.

Section 24 Tax Calculator: Quick Check Guide

Use these steps to estimate your Section 24 impact:

Step 1: Calculate your gross rental income (total rents received)

Step 2: Deduct allowable expenses (excluding mortgage interest)= Your taxable rental profit under Section 24

Step 3: Add this to your other income (salary, pension, etc.)= Your total taxable income

Step 4: Calculate tax on this total using current tax bands

Step 5: Calculate your 20% tax credit: Mortgage interest × 20%

Step 6: Subtract the tax credit from your total tax bill= Your final tax liability

Compare this to what you'd pay under the old rules (where mortgage interest was deductible) to see your Section 24 increase.

Calculating the amount of taxable profit on your rental property can be a fairly complex issue, so it’s well worth consulting with a licensed professional to get financial advice and ensure that you are calculating and paying the right amount.

Important Note on Other Income

Your Section 24 tax calculation doesn't exist in isolation. All income sources count when determining your tax bracket:

• Employment salary or wages
• State or private pensions
• Self-employment profits
• Investment dividends
• Interest from savings
• Other rental properties

Example: Even if your rental profit is only £15,000, if you have a £40,000 salary, your total taxable income is £55,000, which pushes you into that higher-rate bracket where Section 24 hurts most.

Important Tax Change: Holiday Lets No Longer Exempt from Section 24

Until April 2025, Furnished Holiday Lettings (FHLs) were exempt from Section 24 restrictions, making them significantly more tax-efficient than standard buy-to-let properties. However, this exemption has been abolished.

What Changed in April 2025?

The government scrapped the Furnished Holiday Letting tax regime entirely. From 6 April 2025:

• Mortgage interest relief: Holiday let owners now face the same Section 24 restrictions as residential landlords. You can only claim a 20% basic rate tax credit on mortgage interest, not full deduction of finance costs.
• Capital allowances: New expenditure on furniture, equipment, and fixtures can no longer claim capital allowances. Instead, you're limited to "replacement of domestic items relief" like other landlords.
• Capital gains tax reliefs: Holiday lets no longer qualify for Business Asset Disposal Relief (previously Entrepreneurs' Relief) when selling. The special 10% CGT rate is gone—sales now face the standard residential property CGT rate of 24%.
• Trading income treatment: FHL income is no longer treated as trading income for pension relief calculations.

What This Means for Holiday Let Owners

If you operate holiday lets, you now face:

• Higher tax bills due to restricted mortgage interest relief
• Increased capital gains tax when selling (unless you sold before 6 April 2025)
• Loss of beneficial capital allowances on new purchases
• Simplified reporting (all property income is now treated the same)

Your Options

Many holiday let owners are now considering:

1. Transferring to a limited company: Limited companies can still deduct 100% of mortgage interest as a business expense and pay corporation tax at 19-25% rather than income tax at up to 45%
2. Reviewing profitability: With higher tax bills, some properties may no longer be commercially viable
3. Converting to long-term lets: Though this brings its own challenges under the Renters' Rights Act 2025

If you purchased holiday lets specifically for the tax advantages, we strongly recommend consulting with a qualified tax adviser about your options.

How Can Buy-To-Let Landlords Mitigate And Manage The Impact Of Section 24?

For landlords with smaller rental income and portfolios, the effects of Section 24 may be reasonably minimal. For landlords with bigger portfolios, however, these tax implications could be large so it’s well worth considering potential actions that could be taken to reduce the impact of these changes.

1. Overhaul your operating costs. By reducing the amount of money spent elsewhere in the management of your property you may be able to offset the losses caused by Section 24. For instance, if you currently use a property management company to handle the day-to-day running of your properties, you might instead self-manage. This could dramatically reduce your overheads.
2. Refinance your properties. Interest rates are currently low as the UK emerges from the pandemic and begins its economic recovery. Interest rates are likely to remain low, at least for some time which makes it a great time to remortgage your property for a more competitive financing rate.
3. Incorporate your rentals into a limited company. Again, section 24 does not apply to limited companies. By incorporating you can avoid this tax change. Once again though there are considerations that you should take into account before you make any decisions including multiple incorporation costs, for example, stamp duty and capital gains tax will need to be paid when transferring the property to the limited company.
4. Set up a beneficial interest company trust. Like becoming a limited company. This allows you to transfer your portfolio into a company structure, which then allows you to avoid the Section 24 tax changes. You’re also able to maintain personal ownership of the property using this structure. These trusts though, do have other implications, such as corporation tax, and there could be issues with remortgaging in the future. So once again, it is recommended that you seek professional advice before making any decisions.
5. Increasing rent. Modest increases on the rent could offset the additional expenses of the section 24 tax change. However, you need to be careful, increasing the rent by too much could see you slip into a higher tax bracket and end up costing you more.
6. Reducing the size of your portfolio. Now is a good time to review the overall finances for each of your properties and think about streamlining your investment by selling off any underperforming assets.

More Tax Changes for Landlords Coming: Making Tax Digital

Making Tax Digital (MTD) for Income Tax represents another major change coming for UK landlords. Originally scheduled for 2024, the rollout has been delayed and will now be phased in from 6 April 2026.

Who Needs to Comply and When?

MTD requirements are being introduced gradually based on your gross rental income:

• From 6 April 2026: Landlords with combined gross income from rental properties and self-employment over £50,000 in the 2024/25 tax year
• From 6 April 2027: Those with income over £30,000 in the 2025/26 tax year
• From 6 April 2028: Those with income over £20,000 in the 2026/27 tax year

Note: This is your qualifying gross income (total rental income before expenses), not your profit. If you jointly own properties, each owner's share counts towards their individual threshold.

What MTD Means in Practice

Once MTD applies to you, you'll need to:

1. Keep digital records: Use MTD-compatible software to track all rental income and expenses throughout the year
2. Submit quarterly updates: Send summaries of your income and expenses to HMRC four times a year (approximately every three months)
3. File a final declaration: Submit an end-of-year declaration by 31 January, confirming all income sources and claiming any tax reliefs

The quarterly deadlines each year are:

• 7 August (for period ending 5 July)
• 7 November (for period ending 5 October)
• 7 February (for period ending 5 January)
• 7 May (for period ending 5 April)

How to Prepare

With the first compliance deadline approaching in April 2026, landlords should:

• Set up a dedicated bank account: Keep rental income and expenses separate from personal transactions
• Choose MTD-compatible software: HMRC won't provide software—you'll need to purchase your own. Popular options include Landlord Studio (which will be MTD-compliant ahead of the deadline), QuickBooks, Xero, and FreeAgent
• Digitise your records now: Start using digital tracking even if you're not yet required to, so you're familiar with the system
• Consider professional support: Many landlords are engaging accountants or bookkeepers to manage quarterly submissions

Exemptions

Some landlords may be exempt if:

• They can demonstrate it's not reasonably practical to use digital tools due to age, disability, location, or religious beliefs
• The property is a furnished holiday let and doesn't meet income thresholds
• Other specific circumstances apply

However, exemptions are limited—most landlords will need to comply.

Read the full Landlord's Guide to MTD Here

Final Thoughts: Navigating Section 24 Tax Change and the New Buy-to-Let Landscape

Section 24 doesn't exist in isolation. It's part of a broader regulatory shift that has fundamentally changed the economics of buy-to-let property investment in the UK.

Beyond Section 24, landlords in 2025 are facing multiple major changes:

Making Tax Digital – Quarterly digital submissions will replace annual tax returns for landlords with qualifying income over £50,000 from April 2026, requiring MTD-compatible software and significantly more administrative work throughout the year.

Renters' Rights Act – The abolition of Section 21 "no-fault" evictions, mandatory periodic tenancies, and stricter possession procedures will fundamentally change how landlords manage tenancies and recover their properties.

EPC Regulations – Proposed changes will require all rental properties to meet EPC Band C by 2030, with an estimated cost cap of £15,000 per property. Average upgrade costs are projected at £6,100-£6,800, though this varies significantly by property age and condition.

Ongoing Tax Pressures – High Capital Gains Tax, the 5% Stamp Duty surcharge on additional properties, and the potential for future tax increases (such as adding National Insurance onto rental income) targeting property investors all add to the financial burden.

Why You Need Professional Property Management Software

Back in the day, spreadsheets and paper receipts were enough. Today though landlords face stricter rules than ever before. And the rules keep on changing, and not for the better. Which is why it's so important to ensure you have the right tools in your pocket. Landlord Studio can help you:

• Keep allowable expenses separate from restricted costs for accurate Section 24 calculations
• Store MTD-compliant digital records from day one
• Submit quarterly updates directly to HMRC for MTD
• See real-time profit and your actual tax position
• Capture and store digital receipts for audit-ready records
• Automate income and expense tracking with bank feeds
• Get portfolio-level insights to spot underperforming properties

The landlords who succeed are the ones using smart digital tools, keeping meticulous records, and making data-driven decisions. Whether you manage one property or twenty, the right system isn’t just convenient, it’s how you survive and thrive in today’s market.

Create your free Landlord Studio account today, streamline your property management and maximise your investment returns.