If you're buying a buy-to-let, BRR or HMO deal with a mortgage, the way you own it can change your after-tax return more than the headline yield does. The main reason is Section 24.
This article is general information, not tax advice. Tax rules change and your own position matters, so speak to a property tax adviser before deciding how to buy.
What Section 24 is
Section 24 of the Finance Act 2015 changed how individual landlords get tax relief on mortgage interest and other finance costs on residential property. It was phased in between 2017 and 2020.
- Before: mortgage interest was deducted from rental income, so you were only taxed on the profit.
- Now: you're taxed on rental income minus other allowable costs, with no deduction for interest. Instead, you get a tax credit worth 20% of the interest.
For basic-rate taxpayers the result is often similar. For higher and additional-rate taxpayers it can be much worse, and because rental income is now counted before interest, it can push you into a higher tax band.
Who it affects
Section 24 applies to individuals (and partnerships) letting residential property with finance. It does not apply to:
- Limited companies, which deduct finance costs as a normal business expense
- Properties bought without a mortgage
- Furnished holiday lets — although the special tax treatment for these was abolished from April 2025, so they now follow the same rules as other lets
- Rent-to-rent deals, where you don't own or mortgage the property
A worked example
A higher-rate taxpayer buys a buy-to-let personally. Each year it produces:
- Rent: £12,000
- Mortgage interest: £6,000
- Other costs (letting agent, insurance, repairs): £1,500
- Actual cash profit: £4,500
Owned personally (with Section 24): taxable profit is £12,000 − £1,500 = £10,500. Tax at 40% is £4,200, less a 20% credit on the £6,000 interest (£1,200), giving tax of £3,000. That's two-thirds of the cash profit.
Owned in a limited company: taxable profit is £4,500. At the 19% small profits rate, corporation tax is £855. The rest stays in the company. If you take it out as a dividend, you pay dividend tax on top, so the gap narrows — but if you reinvest profits into more property, the company route can grow much faster.
As interest rates rise, the gap widens. In the example, if interest rose to £9,000, the personal owner would still pay tax on £10,500 of "profit" while making only £1,500 in cash.
Changes announced for April 2027
The November 2025 Budget announced separate, higher tax rates on property income for individuals from April 2027 — 22%, 42% and 47% — with the finance cost credit rising to 22% to match. If these go ahead as planned, personal ownership becomes slightly less attractive again for higher-rate taxpayers. Check the current position with your adviser.
The downsides of a limited company
- Mortgages: lender choice is narrower and rates and fees are often slightly higher. Personal guarantees are usually required.
- Getting money out: profits extracted as dividends or salary are taxed again. If you need the income to live on, the saving can be much smaller.
- Running costs: accounts, a corporation tax return and Companies House filings every year.
- Stamp duty: companies always pay the higher rates on residential property. See our stamp duty guide for investors.
- Moving existing properties: transferring properties you already own into a company is usually treated as a sale, which can trigger capital gains tax and stamp duty. Reliefs exist in some cases but need specialist advice.
Questions to answer before you buy
- What tax band are you in, and will rental income push you into a higher one?
- Do you need the income now, or will you reinvest it?
- How many properties are you planning to own over the next 5–10 years?
- How sensitive is the deal to interest rate rises?
- Can you get suitable limited company finance for this property type?
How to compare deals with tax in mind
Most deal packs show gross yield or pre-tax cash flow. When comparing buy-to-let deals or BRR deals, work out the after-tax return for the way you'll actually own the property. Our guide to calculating yields and ROI shows the base calculations to start from.