Section 24 Tax Changes
Section 24 removes the ability for private landlords to deduct mortgage interest from their rental income before calculating tax, replacing it with a basic rate tax credit.
Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how landlords are taxed in the UK. Prior to its phased introduction, landlords who owned properties in their personal names could deduct their mortgage interest payments from their rental income before calculating their tax liability.
Under Section 24, landlords are taxed on their total gross rental income, and they instead receive a 20% basic rate tax credit for their finance costs. This pushed many basic-rate taxpayers into the higher-rate bracket, making highly leveraged personal portfolios suddenly unprofitable.
The Shift to Limited Companies
Because Section 24 only applies to individuals and not to corporate entities, there has been a massive shift towards purchasing buy-to-let properties through Special Purpose Vehicles (SPVs / Limited Companies). Companies pay Corporation Tax on their profits and can still deduct 100% of mortgage interest as a business expense.