How the buy-to-let sector could be affected by Section 24 tax rules


The controversial Section 24 tax relief changes for buy-to-lets are causing a stir among many landlords, while many remain in the dark about what the changes are and how they will be affected.

The income tax relief that landlords can claim on their buy-to-let properties’ mortgage payments is being overhauled by Section 24 of the Finance Act, a measure which was first announced in the Budget back in 2015. The changes, which mean that landlords will no longer be able to claim a reduction on their income tax payments by offsetting the mortgage interest costs, are being phased in over three stages.

As of April 2017, landlords can only claim back 75% of their financing costs – which will apply when they file their January 2019 tax returns – and the amount will reduce to zero from April 2020, to be replaced by a tax credit equivalent at the basic rate of tax (currently 20%), meaning many landlords’ tax bills could increase.

However, according to research from Kent Reliance, 15% of buy-to-let landlords do not understand the Section 24 changes and are not planning on taking any action to counteract the effects.

What can landlords do?

One way of getting around the tax relief reduction is for landlords to set up limited companies through which to operate their properties. This route has become increasingly popular recently, with a fifth of landlords (19%) already operating through a limited company and a sixth (13%) planning to do so in the future, according to Kent Reliance.

If the investment property is owned by a limited company, it means that mortgage interest payments are treated as a business expense and can therefore still be offset against profits – and corporation taxes on profits are currently 19%, which is lower than income tax. Last year, Kent Reliance reported that 70% of buy-to-let applications for purchase were done through a limited company, compared to 45% in 2016.

Transferring ownership of the property to a spouse is another option that could help some landlords to balance the effects of the tax change.

Adrian Molony, sales and marketing director at OneSavings Bank, said: “Many landlords have sought to move to a limited company structure, or transferred ownership to a spouse but it’s not a one-size-fits-all solution so it’s vital that landlords affected seek professional tax advice.”

Are limited companies always the answer?

The research from Kent Reliance found that 58% of smaller landlords (those with one to five properties) did not believe they would benefit from either of the above measures, compared to 27% of large landlords (those with more than 20 properties).

One of the downsides for some landlords switching investment properties from personal ownership to limited companies is that, according to Love Money, the transaction would be viewed as a sale and purchase, meaning stamp duty and capital gains tax could apply.

Borrowing for limited company buy-to-lets is also generally more expensive and can be harder to obtain compared to standard buy-to-lets, and the associated costs involved with setting up and running a limited company in the first place must also be considered by any landlord thinking of making the switch.

Rising rents could be a side-effect

In a study conducted by the Residential Landlords Association (RLA) which surveyed 3,300 landlords, 70% of respondents said that the mortgage interest relief changes would reduce their profitability – and of that amount, 62% believed Section 24 would diminish their profitability by 20% or more.

Most landlords surveyed (67%) said that they planned to put rents up in order to cover their extra costs, while 25% were thinking of selling properties to reduce their borrowing, and a further 25% intended to leave the sector completely as a result of the changes. The knock-on effects mean many tenants could see rents pushed higher, while the availability of rental properties could decrease over the coming months and years as the regulation takes effect.

While every landlord will be affected to different degrees by the new rules, it is vital that everyone in the buy-to-let industry is aware of and fully understands what Section 24 will mean for them.

Highgrove Mews

High Net Yield Freehold Houses

  • Commutable to London (27 mins to central Paddington station)
  • Rental demand extremely strong with large industry presence in Reading
  • Freehold with 4% net yield

£284,955 - £457,000

St Petersgate – Stockport Manchester

New Launch - Stockport Manchester, apartments from £160,000

  • Discounted launch prices from £160,000
  • Excellent transport links with 3 trains per hour to London Euston and only 9 mins journey to Manchester Piccadilly
  • Experienced development team

Assured Rent Housing Association Leases

Assured Rent Housing Association Leases

  • Assured rent & no rental voids
  • Tenant damage cover & newly refurbished inline with requirements of a corporate sitting tenant
  • Free property and lettings management

From £62,000

Emerging Birmingham Commuter Town With Properties From Just £104,000

The emerging Birmingham commuter town where properties are selling in an average of just 24 days

  • A collection of 62 two bedroom apartments and 28 one bedroom apartments.
  • DE14 is one of the fastest selling postcodes in the West Midlands.
  • 23 minute train journey into Birmingham New Street Station.

Properties from £104,000

Mill, Stockport

The Northwest's emerging property hotspot

  • Discounted off-plan 2-bed prices from £162,000
  • Completion date - Q4 2021
  • Rental yields - 6% plus

Discounted off-plan 2-bed prices from £162,000

South Central – Birmingham City Centre Apartments

Highly anticipated 28 storey launch in Birmingham City Centre with an impressive roof garden and communal facilities.

  • 154 units across 28 storeys
  • Residential multi-media community room, gym, roof garden and sky cinema
  • Excellent future connectivity via the metro system to other key transport hubs and locations around the city

from £205,800


Talk to us

Speak to our UK property experts today: 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

+852 9865 4446

Open from 9am-6pm HKT

Stamp Duty Calculator


Unlock members only investment opportunities and full development details. Join now – it’s free, quick and easy.


Not a member? Sign up for free


How the buy-to-let sector could be affected by Section 24 tax rules


By submitting your details via this online form you agree to be contacted via email/phone/SMS by Direct Marketplace Ltd t/a BuyAssociation in relation to property investment and property developments . We do not share your personal details with third parties.  To view our full Privacy Policy click here.