Introduction
The buy-to-let market has changed dramatically in recent years. What was once seen as a straightforward way to generate passive income is now more complex — especially for landlords with mortgages.
Section 24 of the Finance (No.2) Act 2015 has had a major impact, reducing the ability to offset mortgage interest against rental income. Many landlords have seen their tax bills increase significantly, even when their actual profits haven’t changed.
The good news? Incorporating your property portfolio into a limited company can often restore tax efficiency and protect your cash flow.
In this guide, we’ll cover:
- What Section 24 actually is (in plain English)
- How it affects your tax position
- Why a limited company could be the solution
- Practical steps to take — and why expert advice matters
What is Section 24?
Before 2017, landlords could deduct all mortgage interest costs from rental income when calculating taxable profit. This meant your tax reflected your true income after expenses.
Section 24 changed that. Key points:
- Mortgage interest is no longer fully deductible — landlords now receive only a 20% tax credit.
- Higher and additional-rate taxpayers can no longer offset borrowing costs against rental income.
- Landlords can end up taxed on income they haven’t actually received.
Example:
- Rent: £30,000
- Mortgage interest: £20,000
- Before Section 24: Taxed on £10,000 profit
- After Section 24: Taxed on full £30,000, with only a 20% credit for interest
For many landlords, this means substantially higher tax bills, particularly if you’re a higher-rate taxpayer.
The Real Impact on Landlords
Section 24 has had several knock-on effects:
- Reduced profits – net returns are often significantly lower
- Cash flow pressure – less money available for reinvestment or maintenance
- Exiting the market – some small landlords are selling properties
- Portfolio restructuring – many are moving to company ownership to regain tax efficiency
Why a Limited Company Could Be the Answer
Incorporating your rental properties can help mitigate the impact of Section 24:
- Mortgage interest is fully deductible as a business expense
- Profits are taxed at corporation tax rates, generally lower than higher-rate income tax
- Flexible profit extraction via salaries, dividends, or reinvestment
- Easier succession planning and asset protection
Illustration:
- Rent: £50,000
- Mortgage interest: £30,000
- Profit in company: £20,000 taxed at 25% → £5,000 tax
- Profit personally (without company): £20,000 taxed on £50,000 gross rent → potentially £10,000+ tax
Is Incorporation Right for You?
Not every landlord will benefit. Things to consider:
- Number of properties – incorporation is usually most beneficial for portfolios with multiple properties or high leverage
- Transfer costs – SDLT and CGT may apply, but reliefs exist
- Administration – running a company involves ongoing reporting obligations
- Lender relationships – mortgage refinancing may be required
This is why personalised advice is essential.
How Hammond & Co Supports Landlords
We guide landlords through every stage of incorporation:
- Portfolio review – assess whether incorporation will save you money
- Tax planning – identify reliefs such as incorporation relief or partnership exemptions
- Company setup – handle Companies House and HMRC registrations
- Ongoing support – bookkeeping, corporation tax returns, payroll, and inheritance planning
We also provide:
- Cloud accounting with Xero – full visibility and control over your finances
- Regular reviews – ensure your structure adapts as tax rules evolve
- Access to partners – mortgage brokers, solicitors, and other experts
Conclusion & Call to Action
Section 24 has changed the game for landlords — but it doesn’t have to mean reduced profitability.
By moving your portfolio into a limited company, you could:
- Restore tax efficiency
- Protect your assets
- Plan for the future with confidence
Ready to explore incorporation?
Contact Hammond & Co today for a personalised review of your property portfolio.