What is Section 24 for UK Landlords?
Section 24 of the Finance (No. 2) Act 2015 changed the way residential property landlords are taxed. Landlords can no longer deduct mortgage interest costs from rental income before calculating tax.
Instead, you are taxed on gross rental receipts, and receive a basic rate tax credit to offset your bill.
The 20% Interest Tax Credit
Regardless of your marginal tax bracket, HMRC provides a tax credit equal to 20% of your mortgage interest expenses.
For higher-rate (40%) and additional-rate (45%) taxpayers, this creates a major tax increase, sometimes leading to tax liabilities that exceed real cash profits.
Action Plan: Analyze Profitability
- Consider Incorporating: Many landlords move property portfolios into limited company structures where mortgage interest remains fully deductible.
- Model Your Returns: Use our UK Buy-to-Let Mortgage & Tax Relief Calculator to check net profits and yields under Section 24 rules.
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