Landlord Tax: Section 24 and What You Can Still Claim

Tax is one of the biggest costs for landlords — and one of the most misunderstood. Section 24 changed the rules on mortgage interest relief in 2020, and many landlords are still paying more tax than they need to. Here is a clear guide to what you can and cannot claim.

Section 24: The Mortgage Interest Restriction

Before April 2020, landlords could deduct mortgage interest from rental income before calculating their tax bill. Section 24 of the Finance Act 2015 phased this out. Now:

- You cannot deduct mortgage interest from rental income

- Instead, you receive a basic rate tax credit (20%) on mortgage interest payments

- Higher and additional rate taxpayers pay significantly more tax as a result

Example:

Rental income: £18,000/year

Mortgage interest: £10,000/year

Other allowable expenses: £3,000/year

Before Section 24:

Taxable profit: £18,000 - £10,000 - £3,000 = £5,000

Tax at 40%: £2,000

After Section 24:

Taxable profit: £18,000 - £3,000 = £15,000

Tax at 40%: £6,000

Less 20% credit on mortgage interest: £2,000

Net tax: £4,000

The same landlord pays £2,000 more tax per year.

What You CAN Still Deduct

The following are fully allowable expenses:

- Letting agent fees and management charges

- Accountancy fees (for rental accounts)

- Buildings and contents insurance

- Ground rent and service charges (leasehold properties)

- Repairs and maintenance (not improvements)

- Utility bills (if you pay them)

- Council tax (if you pay it during void periods)

- Advertising costs for finding tenants

- Stationery, phone calls and postage related to the rental

- Travel costs to inspect or maintain the property (mileage at HMRC approved rate)

- Legal fees for eviction or lease renewal (not for purchasing the property)

What You CANNOT Deduct

- Mortgage capital repayments

- The full mortgage interest (only a 20% credit applies)

- Improvements to the property (these are capital expenditure, not revenue)

- Personal expenses unrelated to the rental

- Depreciation

The £1,000 Property Allowance

If your rental income is £1,000 or less per year, you do not need to declare it. If it is more than £1,000, you can choose to deduct the £1,000 allowance instead of actual expenses — but only if your actual expenses are less than £1,000.

Wear and Tear Allowance — Abolished

The old 10% wear and tear allowance for furnished properties was abolished in April 2016. You can now only claim for the actual cost of replacing furnishings (the "replacement of domestic items relief").

Capital Gains Tax on Sale

When you sell a rental property, you pay Capital Gains Tax on the gain:

- Basic rate taxpayers: 18% (from April 2024)

- Higher rate taxpayers: 24% (from April 2024)

- Annual CGT exemption: £3,000 (2024/25)

You can deduct:

- Purchase price and buying costs (stamp duty, legal fees, survey)

- Improvement costs (not repairs)

- Selling costs (estate agent, legal fees)

Making Tax Digital for Landlords

From April 2026, landlords with rental income over £50,000 must use Making Tax Digital (MTD) compatible software to submit quarterly updates to HMRC. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.

Should You Incorporate?

Some landlords transfer properties to a limited company to avoid Section 24 (companies can still deduct mortgage interest). However:

- Transfer triggers Capital Gains Tax and Stamp Duty Land Tax

- Company profits are subject to Corporation Tax (25% for profits over £250,000)

- Extracting profits as salary or dividends has its own tax implications

- Take professional advice before incorporating

Common Mistakes

❌ Claiming mortgage capital repayments as an expense

❌ Claiming improvements as repairs

❌ Not keeping receipts for all expenses

❌ Missing the self-assessment deadline (31 January)

❌ Not registering for self-assessment if rental income exceeds £2,500/year

Top Tips

✓ Keep a separate bank account for rental income and expenses

✓ Use accounting software to track income and expenses throughout the year

✓ Keep all receipts — HMRC can investigate up to 6 years back

✓ Consider a specialist landlord accountant — fees are tax deductible

✓ Review your portfolio structure with a tax adviser annually