Mortgage Interest Relief Impact
Before April 2017, landlords could deduct all mortgage interest from rental income before calculating tax — effectively getting relief at their marginal rate. Section 24 replaced this with a flat 20% tax credit. This calculator compares what you would have paid under the old system versus what you pay today, showing the concrete extra cost Section 24 is imposing on your portfolio.
Why this matters
For a 40% taxpayer with significant mortgage interest, Section 24 can add £5,000–£20,000 per year to the tax bill. Quantifying this drives the most important strategic decisions landlords face — sell, hold, incorporate, or restructure.
Key points
- Under the old rules, mortgage interest was deducted at your marginal tax rate (40% for higher-rate payers)
- Under Section 24, you get a fixed 20% tax credit — regardless of your tax band
- The difference for a 40% taxpayer is 20p per £1 of mortgage interest — charged as extra tax
- For additional rate taxpayers (45%), the effective rate on interest is 25p per £1 (45% minus 20% credit)
- Section 24 can push income into a higher band, causing a compounding effect
- Limited companies are completely exempt from Section 24
Frequently asked questions
Who is affected by Section 24?
Section 24 affects individual landlords and partnerships who hold residential buy-to-let properties with mortgages. Basic rate taxpayers are largely unaffected (as the 20% credit matches their marginal rate). Higher and additional rate taxpayers bear the full cost.
Is there a way to avoid Section 24?
The main avoidance route is moving ownership into a limited company, which can still deduct mortgage interest as a business expense. However, this requires considering SDLT on transfer, potential CGT, and ongoing company administration costs. Some landlords sell mortgaged properties and reinvest equity elsewhere.
Does Section 24 affect my pension credits or benefits?
Because Section 24 inflates your apparent taxable income (by removing the interest deduction), it can affect your adjusted net income, impacting child benefit high-income tax charge, pension annual allowance tapering, and personal allowance tapering above £100,000.
Can I claim the old mortgage interest deduction on a limited company?
Yes — limited companies can deduct mortgage interest as a business expense before calculating corporation tax. This is a key tax advantage of incorporating, though the total tax position depends on how you extract profits.