Being a landlord in the UK used to be relatively straightforward from a tax perspective. Then Section 24 came along. Since the mortgage interest restrictions fully kicked in, the tax landscape for buy-to-let investors has changed dramatically. If you’re a landlord — or thinking of becoming one — you need to understand how this affects your bottom line.
How Rental Income Is Taxed
Rental income gets added to your other income (employment, self-employment, pensions) and taxed at your marginal rate. For 2025/26:
- Basic rate: 20% on taxable income up to £50,270
- Higher rate: 40% between £50,271 and £125,140
- Additional rate: 45% above £125,140
Here’s why that matters: rental income doesn’t have its own tax rate. If you earn £45,000 from your day job and £10,000 in rental profit, the rental income pushes you into the higher-rate band and a chunk of it gets taxed at 40%. That changes the maths considerably.
Section 24: The Mortgage Interest Sting
Before April 2017, landlords could deduct mortgage interest in full from rental income before calculating tax. Simple. Fair. Gone.
Section 24 of the Finance Act 2015 changed all that. Since April 2020, mortgage interest is no longer deductible. Instead, you get a basic-rate (20%) tax credit. The impact for higher-rate taxpayers is brutal.
Take Mark, a landlord in Nottingham with £12,000 annual rent and £8,000 mortgage interest:
- Before Section 24: Taxable profit = £4,000. Tax at 40% = £1,600
- After Section 24: Taxable profit = £12,000. Tax at 40% = £4,800, minus 20% credit on £8,000 = £1,600. Net tax = £3,200
His tax bill doubled. And it gets worse: the inflated taxable income can push you into a higher band, trigger the loss of Personal Allowance, or set off the High Income Child Benefit Charge. Section 24 is the single biggest reason landlords have been selling up.
What You Can Still Deduct
You can still claim:
- Letting agent fees and management costs
- Repairs and maintenance (but not improvements — replacing a broken boiler with a similar model is a repair; upgrading to a premium system is an improvement)
- Insurance — landlord, buildings, rent guarantee
- Legal and professional fees for letting (not purchase)
- Accountancy fees for rental accounts
- Ground rent and service charges (leasehold properties)
- Council tax and utilities if you pay them (not the tenant)
- Replacement of domestic items — like-for-like replacement of furniture, appliances, and kitchenware
Should You Buy Through a Limited Company?
Section 24 doesn’t apply to companies. A company pays Corporation Tax (25%) on rental profits, and mortgage interest is fully deductible. This has led lots of landlords to think about incorporating.
But transferring existing properties to a company triggers Stamp Duty (at the higher additional property rates) and Capital Gains Tax. For new purchases, a company structure might work out better, but weigh up the extra admin, accountancy costs, and the fact that company buy-to-let mortgages often carry higher interest rates.
The Furnished Holiday Lettings Change
From April 2025, the favourable tax regime for Furnished Holiday Lettings was abolished. FHL properties used to get full mortgage interest deduction, capital allowances, and CGT reliefs. All gone. Holiday lets are now taxed the same as standard buy-to-let. If you own a holiday cottage, this is a significant hit.
Calculate Your Rental Profit
Our free landlord tax calculator works out your rental profit after expenses and shows the actual impact of Section 24 on your tax bill, comparing your position as an individual versus a company.