UK Buy-to-Let Tax Changes 2025 — Section 24 & Strategies

What Section 24 actually did

Before 2017/18, a landlord deducted mortgage interest and other finance costs from rental income before working out taxable profit — full relief, at whatever their marginal rate happened to be. Section 24 of Finance (No. 2) Act 2015 phased that out over four years, and since 2020/21 it has been fully in effect: an individual landlord can no longer deduct finance costs from rental income at all. Instead, they get a flat 20% tax credit against their finance costs, applied after the tax calculation rather than before it.

Why this barely affects some landlords and badly affects others

A basic-rate (20%) taxpayer loses almost nothing in practice — they were only getting 20% relief on finance costs before Section 24, and they still effectively get 20% now, just delivered as a credit rather than a deduction.

A higher-rate (40%) or additional-rate (45%) taxpayer loses significantly. Because rental income is now assessed before finance costs are deducted, the mortgage interest itself can push a landlord into a higher tax bracket that a net-of-interest calculation never would have — and even setting that bracket-creep effect aside, the credit is capped at 20% regardless of the taxpayer's actual marginal rate.

Worked example

A higher-rate taxpayer earns £30,000 in rental profit before finance costs, with £10,000 of mortgage interest for the year.

• Before Section 24 (pre-2017/18 rules): taxable profit = £30,000 − £10,000 = £20,000, taxed at 40% = £8,000 of tax.
• Under Section 24 (2020/21 onward): taxable profit = the full £30,000 (finance costs are no longer deducted), taxed at 40% = £12,000, less a 20% credit on the £10,000 finance cost (£10,000 × 20% = £2,000), giving net tax of £12,000 − £2,000 = £10,000.

Same income, same mortgage interest — £2,000 more tax purely from the mechanism changing from a deduction to a capped credit.

Companies are a different regime entirely

Section 24 does not apply to limited companies. A company holding rental property still deducts mortgage interest in full against rental income before Corporation Tax, which is one reason incorporation is frequently raised as a strategy for landlords significantly affected by Section 24 — though moving existing personally-held properties into a company can itself trigger CGT and Stamp Duty Land Tax on the transfer, costs that have to be weighed against the ongoing saving rather than assumed away.

Furnished holiday lets lost their exemption in 2025

Until 6 April 2025, a property qualifying as a Furnished Holiday Letting (FHL) sat outside Section 24 entirely, deducting mortgage interest in full like a business. The FHL regime was abolished from that date for Income Tax and Capital Gains Tax (1 April 2025 for Corporation Tax), and FHL income is now taxed as ordinary property income — meaning Section 24's 20% credit mechanism, and the loss of full interest deductibility, now applies to former FHL landlords too, on top of losing the FHL regime's specific capital allowances and CGT reliefs.

FAQ

Q: Does Section 24 apply to a mortgage on my own home? A: No — it applies specifically to finance costs on let residential property, not to a mortgage on a property you occupy yourself.

Q: Is incorporating always the right answer for a higher-rate landlord? A: Not automatically — transferring existing property into a company can trigger CGT and SDLT on the transfer itself, so the decision depends on the specific numbers, not on Section 24 alone.

Q: Do furnished holiday lets get any transitional relief after the 2025 abolition? A: Broadly, former FHLs are treated as ordinary property income from the abolition date, though specific transitional provisions (for example around existing capital allowances pools) exist — check current HMRC guidance for the precise transitional treatment of your situation.

Sources

Figures verified against HMRC/legislative sources as of 30 July 2026:

• Finance (No. 2) Act 2015, Section 24 (phased restriction 2017/18–2020/21; full effect from 2020/21: 20% flat tax credit replacing deduction for individual landlords)
• HMRC / gov.uk guidance on residential property finance costs (mechanism confirmed: finance costs no longer deducted from rental income; 20% basic-rate credit applied instead)
• Furnished Holiday Lettings abolition (Spring Budget 2024, effective 6 April 2025 for Income Tax/ CGT, 1 April 2025 for Corporation Tax) — House of Commons Library and Deloitte/BDO professional guidance (FHL regime ended; former FHL income now taxed as ordinary property income under Section 24)