How much extra tax is Section 24 costing your portfolio?

Section 24 of the Finance (No. 2) Act 2015 phased out the right of private landlords to deduct mortgage interest from rental profits. Fully in force since April 2020, it means landlords are taxed on rental income before deducting mortgage interest, then receive a 20% basic-rate tax credit on the interest. For higher-rate (40%) and additional-rate (45%) taxpayers this creates a real cash tax increase, sometimes pushing landlords into a position where their tax bill exceeds their actual cash profit.

No. Section 24 only applies to private landlords (individuals). Limited companies that hold rental property still get full deduction of mortgage interest against rental profits before Corporation Tax. This is the main reason landlords incorporate, especially those with high-leverage portfolios or those in higher tax bands. The trade-off is dividend tax when extracting profits, plus 5% SDLT surcharge on transferring property to the company unless qualifying for incorporation relief.

It depends on your tax band, leverage, and long-term plans. As a rough rule: higher-rate landlords with mortgage interest above 50% of rental income usually benefit, especially if they retain profits in the company for further property purchases. Lower-rate landlords with little mortgage often do not benefit because the dividend tax and incorporation costs outweigh the saving. The full picture depends on SDLT on transfer, CGT on incorporation, mortgage refinancing implications, and your retention vs extraction strategy. We model this in the £1,200 Tax Planning Workshop with a written incorporation report.

Incorporation relief (Section 162 TCGA 1992) defers the Capital Gains Tax otherwise due when you transfer your property business to a limited company. To qualify, the activity must be a business (not just passive investment), all assets must transfer wholly or mainly in exchange for shares, and the business must continue. HMRC's view (PIM2510) is that 20+ hours per week of property management activity strongly supports business status. SDLT relief may also apply for partnerships transferring to a company. Both reliefs need careful structuring, get professional advice before acting.

Section 24 affects ongoing rental income tax. The 60-day reporting deadline applies to Capital Gains Tax when you sell a UK residential property. The two are separate but landlords often deal with both: managing higher tax during ownership (Section 24) and reporting CGT within 60 days when selling. We handle 60-day reporting for £350 per disposal and ongoing landlord tax returns from £495 per property per year as part of our Landlord Plus service.

Yes, several strategies reduce Section 24 pain without full incorporation: 1) Transfer ownership share to a lower-band spouse via Form 17 declaration. 2) Pay down debt to reduce mortgage interest. 3) Pension contributions reduce taxable income, can move you back into basic rate. 4) Improvement spending qualifies for capital allowances on certain assets. 5) Lower-rate spouse takes ownership of higher-leveraged properties. 6) Consider partnership structure for portfolios. We model the right combination in the Tax Planning Workshop.