We’re coming up on ten years since the UK government announced the dreaded Section 24 tax changes in their Summer 2015 budget. 

Of course, the buy-to-let property industry has been through a lot since then – heck, we’ve all been through a lot since then! – and yet the disaffectionately nicknamed ‘landlord tax’ or ‘tenant tax’ remains a sore spot here in 2024.

What is Section 24? How does Section 24 work?

In a nutshell, Section 24 took away mortgage interest tax relief; the right of landlords to deduct their mortgage interest fees from their taxable income.

Over a four-year period from 2017 to 2020, we saw the amount that landlords could offset from their tax bill gradually reduce; from 100% all the way down to zero. 

And it wasn’t just mortgage interest that was affected. Landlords also found themselves unable to deduct expenses like mortgage admin fees, refurbishment loan interest, early repayment penalties and other costs.

There was one small consolation prize; a new 20% tax credit on mortgage costs to replace the disappearing tax relief. This lessened the impact for basic rate taxpayers, but many landlords in the higher rate and additional rate bands were still left paying thousands more in tax than they were before.

What’s the point of Section 24?

Section 24 was introduced as a measure to slow the growth of the private rental sector, freeing up more of the property market to first-time buyers.

So what’s in it for landlords?

Sadly, nothing. It’s no wonder that the industry dubbed it the ‘Alice in Wonderland tax’; so-called because of the absurdity of the whole thing.

Will Section 24 be reversed?

There’s been a lot of speculation about the Section 24 tax rules in 2024, fuelled by the general election period and the arrival of a new government in Downing Street.

Prior to the GE, almost 30,000 individuals signed a petition calling for the abolition of Section 24; only to receive a rather dismissive response from HMRC (The petition eventually closed at just over 40,000 signatures.)

Notably, the Reform party promised to abolish Section 24 in its manifesto if they were voted into power at the GE. Labour haven’t made any such promise, of course, but it’s worth noting that estate agent trade body Propertymark is pressuring the government to scrap section 24 for good – we’ll see if their efforts succeed.

How have landlords tackled Section 24?

Landlords have employed a variety of different strategies to overcome the financial hurdle of Section 24.

For many, the answer has been to simply raise rents; upsetting a lot of tenants and giving rise to the ‘tenant tax’ nickname. 

Others have tried selling off lesser-performing properties in their portfolios; which of course means a big cash injection in the short term. 

However, in the long term, you can end up selling at a financial loss by selling early (particularly as you could be hit with early mortgage repayment fees). It also ultimately means one less source of rental income, unless you can find a better-performing property for the same price.

Remortgaging for better deals is also an option; and indeed, we’d recommend regularly reviewing your mortgage arrangements regardless of whether or not Section 24 is impacting your property business.

However, as with selling off your property, there can be penalties for repaying your mortgage early. You need to identify whether you’ll be impacted by penalties if you switch to a new mortgage product; and if so, is it going to be worth the hit?

Some landlords have even taken the extreme measure of selling up and getting out of the industry entirely. We believe that’s a mistake; and there’s a simple reason why.

Is there a Section 24 loophole?

There is a Section 24 ‘loophole’ of sorts, but it’s not some shady circumvention of the rules which might land you in legal hot water – it’s very much a feature of the law.

Section 24 restrictions only apply to individuals, not businesses. If you own buy-to-let property via an SPV limited company mortgage, you’ll retain full access to relief on mortgage interest and other aforementioned costs.

Many landlords have indeed chosen to set up a ‘special purpose vehicle’ – a limited company created solely to hold and manage properties on their behalf – which enables them to sidestep the tax changes completely and subtract 100% of the company’s mortgage interest from their taxable income.

What’s more, limited company property investors pay corporation tax instead of income tax on their portfolio profits; which is charged at no more than 25% no matter how much your properties earn.

Take a look at our buy-to-let tax calculator and run the numbers yourself!

And that’s not all a limited company SPV mortgage can do. Visit our SPV buy-to-let mortgages page to find out more; and to investigate whether an SPV mortgage is right for you, get in touch with our team today.