UK Landlord Tax Calculator: Section 24 Mortgage Interest
Work out the true tax cost of your UK buy-to-let under Section 24, including the 20% mortgage interest tax credit, and compare Individual vs Limited Company ownership. Uses 2024/25 rates.
Understanding Section 24
Before April 2017, landlords could deduct mortgage interest from rental income as a normal expense. Section 24 phased that out over four years — fully in force since April 2020. Now the mortgage interest gets no deduction at all against rental profit; instead you get a 20% tax credit on it at the end.
Why higher-rate landlords lose the most
If you're a basic-rate taxpayer and your rental profit stays in the basic band, Section 24 is roughly neutral: you'd pay 20% either way. But if:
- you're already a higher-rate taxpayer (£50,270+ total income), your rental profit is taxed at 40% but the credit is only 20% — a 20-point gap on your interest;
- your rental profit pushes you into higher rate — same story, plus you might lose personal allowance if total income exceeds £100k;
- you're additional-rate (over £125,140), the gap is 25 points on interest.
How the 20% credit "cap" works
HMRC applies the credit to the lowest of three figures — your mortgage interest, your property profits after other expenses, or your adjusted total income. This means if a bad year leaves you with tiny rental profits, you don't get a big cash refund; the unused credit is carried forward. Small landlords with breakeven or loss-making years should keep track of these carried-forward credits.
Limited company: full deduction, but extraction cost
A Ltd company treats mortgage interest as a normal business expense. Profit is taxed at corporation tax (19% up to £50k, 25% above £250k, with marginal relief in between). If you retain profit inside the company, that's the only tax layer. If you extract as a dividend, you pay dividend tax on top (8.75 / 33.75 / 39.35% after the £500 allowance), and it stacks on your other personal income.
Frequently asked questions
What is Section 24 and how does it affect landlords?
Section 24 of the Finance (No. 2) Act 2015 stops individual landlords from deducting mortgage interest as a rental expense. Instead, you get a flat 20% tax credit on the mortgage interest. The practical effect: your entire rental income (before mortgage) gets taxed at your marginal rate, and you can only claw back 20% of the interest. Higher- and additional-rate taxpayers lose out significantly, and it can push some basic-rate landlords into the higher band on paper.
How is the 20% mortgage interest tax credit calculated?
HMRC applies the 20% credit to the LOWEST of three numbers: (1) your finance costs (mortgage interest), (2) your property profits after all other expenses, and (3) your adjusted total income (income above the personal allowance). This means if your rental profit before mortgage is small, you may not get the full 20% back — it's capped at the profit itself. Any unused credit can be carried forward.
Should I hold my buy-to-let in a limited company instead?
For a highly-geared portfolio (big mortgage relative to rent) held by a higher-rate taxpayer, a limited company is often more tax-efficient because the company gets full mortgage interest deduction against corporation tax (19–25%), rather than the individual's 40–45% rate with only a 20% credit. But moving existing properties into a company triggers stamp duty and CGT — this calculator only compares new purchases. Consult a specialist BTL accountant before restructuring.
What counts as an allowable expense?
For BTL landlords: agent/letting fees, insurance, repairs and maintenance (not improvements), ground rent, service charges, accountancy fees, council tax during void periods, safety certificates (gas, EICR, EPC), advertising, and 100% of replacement domestic items (like-for-like appliances). Mortgage interest and mortgage arrangement fees are NOT allowable on the personal side — that's the Section 24 issue.
Does this include Scottish or Welsh tax rates?
This calculator uses the rest-of-UK income tax bands (20/40/45%). Scotland has different bands (19/20/21/42/47%) which change the marginal rate — the Section 24 mechanics are the same but the numerical outcome differs. For Wales, the current rates match rest-of-UK. If you're Scottish, treat the outputs here as approximate.
Where's Class 2 / Class 4 NIC on rental income?
Rental income is treated as investment income, not trading income — you don't pay National Insurance on it. That's true even if you have many properties, unless HMRC deems it a full-time property business (rare). This calculator therefore ignores NIC on rental profit.
Estimates based on 2024/25 UK tax rates and thresholds. Not tax advice — landlord tax is complex and personal circumstances matter. Please consult a qualified accountant before making decisions.
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