Navigate the UK's most punitive property tax change. Learn legitimate strategies to restructure your portfolio and protect your profits from the tenant tax.
Introduced in the Finance (No. 2) Act 2015 and fully phased in by 2020, Section 24 fundamentally broke the traditional buy-to-let model. By restricting mortgage interest relief to the basic rate of 20%, HMRC effectively taxes landlords on revenue rather than actual profit. For higher-rate taxpayers with leveraged portfolios, this can result in paying tax on loss-making properties. Here is how professional investors are adapting.
The most common defence. Section 24 only applies to individuals. Buying new properties through a Special Purpose Vehicle (SPV) Limited Company allows you to deduct 100% of your mortgage interest as a business expense before paying Corporation Tax.
Transferring properties you already own into a company triggers Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) as it is legally a 'sale'. However, if you run your portfolio as a genuine business (spending significant hours managing it), you may qualify for Incorporation Relief (s162 TCGA 1992) to roll over the CGT.
To mitigate the SDLT hit on incorporation, some landlords form a Limited Liability Partnership (LLP) first, run it for a few years, and then incorporate. This is highly complex and heavily scrutinised by HMRC—do not attempt this without a specialist property tax advisor.
If you are a higher-rate (40%) or additional-rate (45%) taxpayer, but your spouse or civil partner pays the basic rate (20%) or has unused personal allowance, you can transfer the rental income to them.
You do not necessarily need to change the legal title on the mortgage. You can use a Deed of Trust to alter the 'beneficial interest' (e.g., 99% to your spouse, 1% to you). You must then file a Form 17 with HMRC within 60 days to ensure the tax is split according to the new beneficial ownership.
This only works if the receiving spouse remains a basic-rate taxpayer after the new rental income is added to their existing earnings. If the extra income pushes them into the higher bracket, Section 24 will bite them too.
Section 24 strictly applies to residential dwelling houses. Commercial properties (shops, offices, industrial units) are completely exempt. You can still deduct 100% of your finance costs against commercial rental income in your personal name.
Historically, Furnished Holiday Lets (FHLs) were exempt from Section 24. Be aware that the FHL tax regime was abolished in April 2025. Short-term lets and Airbnbs held in personal names are now fully subject to Section 24 interest restrictions. Do not rely on outdated advice suggesting holiday lets as a loophole.
Properties that combine commercial and residential elements (like a retail shop with a flat above on a single freehold title) are classed as commercial for tax purposes. This bypasses Section 24 entirely while still giving you exposure to residential yields.
Historically, Furnished Holiday Lets (FHLs) were exempt from Section 24. Be aware that the FHL tax regime was abolished in April 2025. Short-term lets and Airbnbs held in personal names are now fully subject to Section 24 interest restrictions. Do not rely on outdated advice suggesting holiday lets as a loophole.
Review your portfolio ruthlessly. Sell underperforming, low-yield properties that are heavily mortgaged. Use the equity released to pay down the debt on your high-performing assets. Lowering your overall Loan-to-Value (LTV) reduces the finance costs that are subject to the tax restriction.
While it sounds obvious, many landlords absorb rising costs rather than passing them on. Ensuring your properties are let at true market value is essential to maintain a buffer against the artificial tax inflation caused by Section 24.