5 Ways Landlords Can Reduce the Tax Hit from Section 24

Landlords can reduce the tax hit from Section 24 by incorporating their portfolio, transferring shares to a lower-earning spouse, claiming all allowable expenses, making pension contributions, and restructuring their borrowing. Section 24 is the finance costs restriction that stops individual landlords deducting mortgage interest from rental income, replacing it with a 20% basic-rate tax credit that leaves higher-rate taxpayers significantly worse off. Understanding the Section 24 landlord tax UK rules is the first step, but knowing the legitimate ways to soften the impact is what protects your returns. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, helps landlords across the UK restructure their property income to pay only what they must. This article sets out five practical strategies with worked figures for 2026/27.

Key Takeaways

• Section 24 replaces mortgage interest relief for landlords with a 20% basic-rate tax credit, so higher-rate taxpayers effectively lose 20% of their interest deduction.
• Incorporating a portfolio lets a limited company deduct mortgage interest in full against profits taxed at 19% to 25%, sidestepping the finance costs restriction.
• Transferring a share of a property to a lower-earning spouse can move rental profit into the basic-rate band and reduce the household tax bill.
• Personal pension contributions extend your basic-rate band, which can restore full relief on mortgage interest for a higher-rate landlord.
• Section 24 is calculated on rental profit before finance costs, so the restriction can push a landlord into the higher-rate band even when real cash profit is modest.

What is Section 24 and why does it increase landlord tax?

Section 24 is the rule that prevents individual landlords deducting mortgage interest and other finance costs from rental income, giving instead a tax credit worth 20% of those costs. Introduced in stages from 2017 and fully in force since April 2020, the finance costs restriction means your taxable rental profit is now calculated before deducting interest, which can inflate your income on paper.

The practical effect falls hardest on higher- and additional-rate taxpayers. A basic-rate landlord broadly breaks even, because the 20% credit matches their tax rate. A higher-rate taxpayer, however, is taxed at 40% on profit that includes the interest, then only receives relief at 20%, losing the difference. Worse, the inflated profit figure can drag a landlord into the higher-rate band or reduce entitlements such as the personal allowance and child benefit.

Ways one and two: incorporation and spouse transfers

Incorporating your portfolio is the most complete way to escape Section 24, because a limited company deducts mortgage interest in full before paying corporation tax at 19% to 25%. Companies are not subject to the finance costs restriction, so interest is a normal business expense again. Incorporation carries costs, including potential stamp duty land tax and capital gains tax on transfer, and commercial buy-to-let mortgage rates, so it suits larger or growing portfolios rather than a single flat.

Transferring a share of a property to a lower-earning spouse is a simpler option for jointly owned homes. If one partner is a basic-rate taxpayer, shifting rental profit to them means more of it is taxed at 20% rather than 40%, and the 20% mortgage interest relief landlord credit is enough to cover their liability. A declaration of trust and, for married couples, a Form 17 election set the income split for tax purposes.

Incorporation is the most significant of the five and carries stamp duty and capital gains costs of its own, all set out in our guide to incorporating a property portfolio.

Ways three, four and five: expenses, pensions and borrowing

Claiming every allowable expense reduces the rental profit that Section 24 is calculated on, so meticulous record-keeping directly lowers your bill. Repairs, letting agent fees, insurance, ground rent, and replacement of domestic items are all deductible in full, unlike finance costs. Many landlords under-claim simply through poor records.

Making a personal pension contribution extends your basic-rate band by the gross amount contributed, which can pull rental profit back out of the 40% band. A landlord who contributes £8,000 net, grossed up to £10,000, raises their higher-rate threshold from £50,270 to £60,270, restoring full effective relief on interest within that band while building retirement savings.

Restructuring borrowing is the fifth lever. Because the finance costs restriction only bites on mortgage interest, reducing the loan against a residential let, or holding lower-geared property personally and higher-geared property in a company, can cut the amount caught by Section 24. Any refinancing decision should weigh interest rates and cash flow, not tax alone.

Worked example: a higher-rate landlord in 2026/27

A higher-rate landlord with £20,000 rental income, £4,000 of running costs, and £9,000 of mortgage interest pays £1,800 more under Section 24 than under the old rules. Taxable profit is £16,000 (income less running costs, with interest no longer deductible), taxed at 40%, giving £6,400. A 20% credit on the £9,000 interest reduces this by £1,800, leaving £4,600 payable.

Under the pre-2017 system, interest would have been fully deductible, giving profit of £7,000 taxed at 40%, or £2,800. The £1,800 difference is the Section 24 cost. If the same landlord transferred half the property to a basic-rate spouse and made a modest pension contribution, much of that additional charge could be recovered.

Frequently Asked Questions

What is the Section 24 tax rule for landlords?

The Section 24 tax rule stops individual landlords deducting mortgage interest and other finance costs from rental income, replacing the deduction with a tax credit worth 20% of those costs. Fully in force since April 2020, it means rental profit is taxed before interest is accounted for, which increases the tax paid by higher- and additional-rate landlords in particular.

Does Section 24 apply to limited companies?

Section 24 does not apply to limited companies. A company that owns rental property deducts mortgage interest in full as a business expense before paying corporation tax at 19% to 25%. This is why many landlords consider incorporating their portfolio, though transferring property into a company can trigger stamp duty land tax and capital gains tax, so professional advice is essential.

Can transferring property to my spouse reduce Section 24 tax?

Transferring a share of a rental property to a lower-earning spouse can reduce Section 24 tax by moving rental profit into the basic-rate band, where the 20% interest credit fully covers the liability. Married couples use a declaration of trust and a Form 17 election to set the income split. The benefit depends on each partner's other income.

How do pension contributions help with Section 24?

Pension contributions help with Section 24 by extending your basic-rate band by the gross amount contributed, which can move rental profit out of the 40% higher-rate band. A £10,000 gross contribution raises the higher-rate threshold from £50,270 to £60,270, restoring more effective relief on mortgage interest while building retirement savings at the same time.

How Blue Tick Can Help

Blue Tick Accountants reviews your portfolio and models each option, from incorporation to spouse transfers and pension planning, so you can see the real effect of the finance costs restriction on your tax bill. As specialists in Section 24 landlord tax UK planning, Blue Tick Accountants tailors a strategy to your circumstances rather than applying a one-size-fits-all fix. Head to our website and book a meeting now.

Conclusion

Section 24 cannot be avoided by individual landlords, but its impact can be managed. Incorporation, spouse transfers, full expense claims, pension contributions, and smarter borrowing each reduce the profit caught by the finance costs restriction, and combining them often works best. The right mix depends on your income, your portfolio, and your plans, so model the numbers before acting rather than assuming one route suits everyone.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps landlords across the UK manage buy-to-let taxation and the impact of Section 24. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: Section 24 vs Company Ownership: Which Property Structure Wins on Tax?.