Section 24 Explained: The UK “Landlord Killer” Tax
Section 24 — sometimes referred to as the “tax on interest” — is one of the most devastating UK tax changes of the last decade for landlords. Coming up to almost a decade since it was introduced, it’s earned the nickname the “landlord killer tax” for good reason. This article breaks down exactly what Section 24 is, why it creates such large and unexpected tax bills, and the range of solutions available to landlords holding property in their own name.
The 4 Biggest Problems With Section 24
- Interest is not fully tax deductible — this is the core mechanism behind Section 24, explained in detail below.
- Inflation — as property prices and rental income rise, the relevant tax thresholds haven’t changed, meaning more landlords with property in their own name are being pulled into this problem over time.
- Property rental in your own name has become cash flow negative — the money actually sitting in your bank account is not necessarily what shows up as taxable profit on paper.
- Making Tax Digital (MTD) compliance — a more recent problem. If your combined rental and/or sole trader income exceeds £50,000 from April 2026, you’ll need to file five self-assessment submissions instead of one. That threshold drops to £30,000 from April 2027, and to £20,000 from April 2028 — pulling significantly more landlords into additional compliance obligations.
What Is Section 24 Tax on Interest?
Many landlords know Section 24 is hurting them financially without fully understanding why. To explain it clearly, it helps to compare how mortgage interest was treated before 2017 versus how it’s treated now — using today’s tax thresholds to make the comparison easier to follow.
How Landlords Were Taxed Before 2017
Consider a landlord with the following figures:
- Employment income: £50,270 (the threshold at which higher-rate tax currently kicks in)
- Rental income after expenses (excluding mortgage interest): £20,000
- Mortgage interest: £20,000
Under the pre-2017 rules, mortgage interest was deducted “above the line” — directly against rental income, before working out your tax bill. In this example, £20,000 of rental income minus £20,000 of interest left £0 of taxable rental profit. The landlord would simply be taxed on their £50,270 of employment income, with no additional tax from the rental property at all.
How Landlords Are Taxed on Mortgage Interest Today
Under Section 24, the government made a subtle but significant change: instead of deducting interest above the line against rental income, interest is now moved below the line — you only receive a 20% “tax reducer” (a tax credit), rather than a full deduction.
Using the same figures as before, here’s what changes:
| Step | Amount |
|---|---|
| Employment income | £50,270 |
| Rental income (after expenses, excluding interest) | £20,000 |
| New gross taxable income (interest no longer deducted above the line) | £70,270 |
| Tax reducer (20% × £20,000 mortgage interest) | £4,000 credit |
| Tax on the additional £20,000 of income at the 40% higher rate | £8,000 |
| Net additional income tax now owed (£8,000 − £4,000 credit) | £4,000 |
So where the landlord previously paid £0 in tax on their rental income, they now owe £4,000 — despite the actual cash position (rent received minus interest paid) being identical to before.
Why Section 24 Creates Huge Tax Bills
The £4,000 additional tax bill isn’t the whole story. The UK tax system also includes something called “payment on account”, which requires you to pay an advance instalment toward next year’s tax bill, based on this year’s liability. This effectively adds another £4,000 to what needs to be paid.
That means a landlord who previously paid £0 in tax on their rental income could face a cash flow hit of £8,000 in total — £4,000 in actual tax owed, plus £4,000 in payment on account for the following year. That £8,000 represents the full difference between the pre-2017 system and the current Section 24 rules.
Why Property Is Becoming Cash Flow Negative
This is where Section 24 becomes especially painful: landlords are being taxed on money they never actually received. The interest paid is still genuinely £20,000 — that money has left the landlord’s account to the lender. Yet under the current rules, a portion of that £20,000 is effectively treated as taxable profit, creating a tax bill on income that doesn’t exist in cash terms. This is a key reason why many landlords holding property in their own name are finding rental property has become cash flow negative, even where the underlying numbers on paper look unchanged from before.
For many landlords, this has been the final straw — having already taken on risk and paid tax on the income used to fund their deposit, they’re now facing a second, unexpected tax hit simply for holding the property, unrelated to any actual increase in their cash income.
Inflation Is Making Section 24 Worse
To make matters worse, the relevant tax thresholds haven’t increased in line with inflation, and aren’t expected to for several years. As the cost of living rises and rental income increases alongside it, more landlords are being pulled into higher tax bands and larger Section 24 tax bills — even though their actual financial position hasn’t meaningfully improved. This dynamic is a significant factor driving landlords to exit the property market altogether. Left unmitigated, Section 24 can mean landlords aren’t making money from property at all — it can actually be costing them money once these excessive income tax charges are factored in year after year.
How to Solve Section 24 Problems
There are several ways landlords can address the impact of Section 24. Here are five major areas to consider — always seek advice specific to your own circumstances, as each comes with its own additional tax implications.
1. Claiming All Tax-Deductible Expenses
The simplest starting point: make sure you’re claiming every legitimate tax-deductible expense, beyond just mortgage interest. Every pound of legitimate expense claimed saves you 20p or 40p in tax, depending on your tax band — so it’s well worth the time to get this right with your accountant or tax advisor when your return is being prepared.
2. Reducing Mortgage Interest Costs
Look at the total mortgage balance across your property portfolio. Remortgaging to a lower capital amount can reduce the interest owed, depending on prevailing mortgage rates — which in turn reduces your exposure to Section 24. There can be other tax implications to remortgaging, so this is worth discussing with an advisor before acting.
3. Changing Your Property Portfolio Structure
This is a bigger and more complex area — always get advice before making changes. Two common options within this category are:
Joint Ownership & Property Partnerships
- Own name to joint ownership — commonly used between husband and wife, typically via a deed of trust. Even between spouses, this can trigger tax implications, including Stamp Duty Land Tax in England (with equivalent implications under different names in Wales and Scotland), so advice is essential.
- Partnerships — LLPs (Limited Liability Partnerships) are generally preferred over general partnerships due to better liability protection, and are registered at Companies House as a separate structure. Partnerships can help allocate rental income between more than one person — particularly useful where one spouse is a higher-rate taxpayer and the other is a lower-rate taxpayer. Family members, including children, can potentially be involved, but this requires advice due to the tax implications of changing ownership.
4. Incorporating a Property Portfolio
Moving your property portfolio into a limited company structure is a major option — but specialist advice is essential, since the outcome varies significantly depending on your specific portfolio. There are three major areas to evaluate:
Capital Gains Tax & SDLT Risks
- Capital Gains Tax (CGT) — incorporating typically involves selling the property into the company, which can trigger a CGT liability. Whether any reliefs apply, and whether you meet the criteria for them, needs proper evaluation.
- Stamp Duty Land Tax (SDLT) — when a portfolio is moved into a limited company, SDLT typically becomes payable. Exemptions may be available depending on your portfolio and circumstances, so advice is essential here too.
- Financing — one of the key reasons landlords consider incorporating is that mortgage interest isn’t tax deductible in the same way when held personally. However, moving property into a company can trigger a latent capital gain, and existing mortgage lenders’ terms and conditions may impose a mortgage redemption charge when the property changes ownership. It’s important to fully understand these implications before proceeding.
5. Buying Future Property Through a Limited Company (SPV)
For future property purchases, many landlords choose to buy directly through a limited company rather than in their own name. This is because mortgage interest is 100% tax deductible within a limited company, without the Section 24 restriction that applies to personally-held property. This is typically done through an SPV (Special Purpose Vehicle) — the term used for a limited company set up specifically to hold property.
Group Structures & Family Investment Companies
Beyond the five core solutions, there are more advanced tools worth exploring for sophisticated property entrepreneurs:
- SSAS pensions — can be linked to your company structure to create additional planning opportunities.
- Group structures — recommended for sophisticated property entrepreneurs, ideally set up early rather than retrofitted later.
- Family Investment Companies (FICs) — a specific type of company structure that can help mitigate Inheritance Tax and assist in passing a property portfolio on to loved ones, typically children, as beneficiaries.
Final Thoughts for UK Landlords
Section 24 has fundamentally changed the economics of holding rental property in your own name — turning what was once tax-neutral into a significant, and growing, annual tax burden as inflation pushes more landlords into its scope. The good news is there are genuine short-term and longer-term solutions available, from simple expense claims through to full portfolio restructuring, incorporation, or building future purchases through the right company structure from the outset.
Tackle Section 24 the Right Way with GoldHouse Accounting
If Section 24 is quietly eating into your rental profits, you’re far from alone — and there are real solutions available, from claiming every deductible expense through to restructuring your portfolio or incorporating into a limited company. At GoldHouse Accounting, our property accountants and wealth management consultants specialise in helping landlords navigate Section 24, joint ownership, LLPs, incorporation, SSAS pensions, and Family Investment Companies. Get in touch to find out which solution actually fits your portfolio, before your next tax bill catches you by surprise.
This article reflects the presenter’s personal views and illustrative examples using rounded, simplified figures and current thresholds. It is not personalised financial or tax advice. Speak to a qualified tax advisor before restructuring, incorporating, or remortgaging a property portfolio, as individual circumstances significantly affect the outcome.
