Buy-to-let after Section 24 — the real numbers at each tax band
The 2017 introduction of Section 24 fundamentally changed the economics of leveraged buy-to-let for higher-rate taxpayers. Many articles about BTL profitability still use pre-2017 logic. This guide does the actual post-Section 24 maths.
What Section 24 actually changed
Before 2017, landlords could deduct mortgage interest as a business expense, paying tax only on net profit (rent minus mortgage interest minus other costs). A higher-rate taxpayer with rent of £12,000 and mortgage interest of £8,000 paid 40% tax on £4,000 profit — £1,600.
Since 2020 (full phase-in), the deduction is gone. Tax is paid on gross rental income minus allowable costs (but NOT mortgage interest). A basic rate tax credit is then applied equivalent to 20% of mortgage interest. The maths for higher-rate taxpayers is materially different.
The same example post-Section 24
Rent: £12,000. Mortgage interest: £8,000. Other allowable costs: £1,500. Taxable income: £12,000 − £1,500 = £10,500. Tax at 40%: £4,200. Less basic rate credit: £8,000 × 20% = £1,600. Net tax: £2,600. Compare to the pre-S24 tax of £1,600 — that's 63% more tax on the same property with the same rent and mortgage.
Who is affected most
Higher and additional rate taxpayers with leveraged properties (large mortgages relative to property value) are worst affected. Basic rate taxpayers are less affected — they pay 20% tax and receive a 20% credit, so the credit largely neutralises the charge. Limited company structures avoid Section 24 (companies can still deduct mortgage interest) but introduce corporation tax, dividend tax, and additional complexity.
Stress-testing your own numbers
The applies correct post-Section 24 treatment at your tax band, showing net yield after mortgage, maintenance, voids and tax — and compares it to investing the deposit instead.
What the data shows
Independent analysis consistently shows that leveraged BTL at higher-rate tax bands in high-price, low-yield areas (London, South East) produces net yields below what a diversified index fund would return on the same capital — without the concentration risk, illiquidity, and management overhead of direct property ownership. In lower-price, higher-yield areas the case is stronger — but Section 24 still materially reduces returns compared to pre-2017 projections.
What Section 24 actually changed
Before 2017, landlords could deduct mortgage interest as a business expense, paying tax only on their profit after financing costs. Section 24 replaced this with a 20% tax credit on mortgage interest — regardless of your tax band. For basic-rate taxpayers, the net effect is broadly neutral. For higher-rate taxpayers, the change is significant: they now pay tax on income that includes financing costs they can no longer fully offset.
The maths at each tax band
Consider a landlord with: rental income £18,000/year, mortgage interest £9,000/year, other allowable expenses £2,000/year.
Illustrative. The higher-rate landlord in this example sees net profit fall by 43% due to Section 24 alone. Use the BTL True Return Calculator for your specific numbers.
Section 24 and the tax band trap
Section 24 creates an additional problem: it can push landlords into a higher tax band even if their actual cashflow doesn't warrant it. Rental income is now assessed gross (before financing costs), which means a basic-rate taxpayer whose total income including gross rental income exceeds £50,270 will be assessed as a higher-rate taxpayer — and Section 24 then applies at the higher rate on the excess.
The limited company route
Limited companies are not subject to Section 24. Companies pay corporation tax (25% from April 2023) on profits after all allowable expenses — including mortgage interest. Whether incorporating is beneficial depends on your circumstances:
- Ongoing costs: company accounts (£500–1,500/year), Corporation Tax filing, potentially a director's salary to pay. These costs eat into the Section 24 saving for smaller portfolios.
- Extraction costs: profits taken out as dividends are taxed again in your hands. The combined corporation tax plus dividend tax can exceed the income tax a basic-rate taxpayer pays under Section 24.
- New purchases: for landlords buying new properties, starting with a limited company structure from the outset is usually more efficient than incorporating an existing portfolio (which involves Stamp Duty and potentially CGT on the transfer).
Other allowable expenses that remain fully deductible
Section 24 only restricts mortgage interest — other expenses remain fully deductible: letting agent fees, repairs and maintenance (not improvements), insurance, council tax and utilities when void, service charges, professional fees (accountant, solicitor), and the 10% wear-and-tear allowance for furnished properties was replaced with actual cost relief.