Section 24 Calculator & Analysis for UK Landlords

Section 24: The Mortgage Interest Restriction Explained

Section 24 of the Finance Act 2015 — often called the "tenant tax" — changed how individual landlords are taxed on rental income. Before this legislation, landlords could deduct mortgage interest as an expense, reducing their taxable profit. A higher-rate taxpayer paying £12,000 per year in mortgage interest saved £4,800 in tax.

Under the current rules (fully phased in from April 2020), mortgage interest can no longer be deducted from rental income. Instead, all landlords receive a flat 20% tax credit on their finance costs. For basic-rate taxpayers, the net effect is broadly neutral. But for anyone paying tax at 40% or 45%, the difference is substantial — and in some cases, it can push landlords into a higher tax band or create a tax liability that exceeds their actual cash profit.

This is why understanding Section 24's impact on your specific portfolio is not optional — it's essential for making informed investment and financing decisions.

How Section 24 Changes Your Tax Bill

Consider a landlord with £24,000 annual rental income, £8,000 in allowable expenses, and £10,000 in mortgage interest payments. Here's how the numbers differ:

Before Section 24: Taxable profit = £24,000 - £8,000 - £10,000 = £6,000. At 40% tax rate, the tax bill is £2,400.

After Section 24: Taxable profit = £24,000 - £8,000 = £16,000 (mortgage interest no longer deductible). At 40%, tax on this is £6,400. The basic rate credit is 20% of £10,000 = £2,000. Final tax bill = £6,400 - £2,000 = £4,400.

The effective tax increase in this example is £2,000 — an 83% increase on the original tax bill. For landlords with larger mortgages or multiple leveraged properties, the impact scales up significantly. Some landlords find their tax bill exceeds the net rental cash flow after mortgage payments.

How LandlordGuru's Section 24 Analysis Works

LandlordGuru doesn't just calculate your tax — it gives you a clear, visual breakdown of how Section 24 affects each property and your portfolio as a whole.

• Property-Level Impact — See the Section 24 effect on each individual property, identifying which assets are most affected by the restriction.
• Effective Tax Rate — The report calculates your true effective tax rate on rental income after Section 24, which is often higher than your marginal rate would suggest.
• Before & After Comparison — A clear side-by-side view of your tax position with and without the Section 24 restriction, so you can quantify the exact cost.
• Cash Flow Impact — See how Section 24 affects your actual cash position after mortgage payments and tax, not just the paper profit.
• Portfolio Optimisation — Identify which properties deliver the best returns after tax and which might benefit from debt reduction or restructuring.

Strategies to Mitigate Section 24 Impact

While you cannot avoid Section 24 as an individual landlord, several strategies can reduce its impact. LandlordGuru's analysis helps you model these options before committing.

• Mortgage Overpayments — Reducing your outstanding mortgage reduces your finance costs and therefore the Section 24 restriction. The report shows how different debt levels affect your tax position.
• Maximise Allowable Expenses — Ensure you claim every legitimate expense to reduce your taxable profit. LandlordGuru's expense tracking ensures nothing is missed.
• Incorporation Assessment — Limited companies are not affected by Section 24. However, transferring property triggers stamp duty and potentially capital gains tax. The decision requires careful modelling.
• Portfolio Review — Some properties with high loan-to-value ratios may generate negative cash flow after Section 24 tax. Identifying these early allows proactive decision-making.

Note: LandlordGuru provides analysis and calculations to inform your decisions. For structural changes like incorporation, we recommend consulting a qualified tax adviser.