Section 24
Tax rule from the Finance Act 2015 that prevents individual landlords from deducting mortgage interest as an expense, replacing it with a 20% tax credit.
Section 24 of the Finance Act 2015, fully phased in by April 2020, fundamentally changed how mortgage interest is treated for individual landlords.
Before Section 24
Mortgage interest was a fully deductible expense. If you earned £20,000 in rent and paid £12,000 in interest, you were taxed on £8,000 profit.
After Section 24
Mortgage interest is no longer deductible. Instead, you are taxed on the full rental income and receive a 20% tax credit on your interest payments.
For basic-rate taxpayers (20%), the net effect is broadly neutral. But for higher-rate (40%) and additional-rate (45%) taxpayers, the impact can be devastating — creating "phantom profits" where your tax bill exceeds your actual profit.
The Phantom Profit Example
| Old Rules | Section 24 | |
|---|---|---|
| Rental income | £20,000 | £20,000 |
| Mortgage interest | −£15,000 | Not deductible |
| Taxable profit | £5,000 | £20,000 |
| Tax @ 40% | £2,000 | £8,000 |
| 20% credit on interest | — | −£3,000 |
| Total tax | £2,000 | £5,000 |
Real profit is £5,000. Under Section 24, the tax bill is also £5,000 — leaving zero net income.
Common Responses
- Incorporating — buying through an SPV Ltd company where interest remains deductible
- Deleveraging — paying down mortgages to reduce interest costs
- Selling — disposing of low-yielding, highly leveraged properties