Section 24 and income
Seven ways landlords respond to Section 24
Company ownership, spouse transfers, Form 17, paying down debt, partnerships, pensions and selling weaker properties: the Section 24 options compared.
Section 24 stops individual landlords deducting mortgage interest from rental income. Instead you get a tax credit at the basic rate: 20% for 2026/27 and 22% from April 2027, when the new property income rates of 22%, 42% and 47% start. For a higher-rate landlord, the interest is taxed at 40% (42% from 2027) and only half of that comes back.
There's no single fix. There are seven common responses, each with real costs. This article sets them out side by side so you can see which might fit your portfolio.
The options at a glance
| Option | Best suited to | Main cost or risk |
|---|---|---|
| 1. Company ownership | Higher-rate landlords reinvesting profits | CGT and SDLT on transfer, refinancing, extraction tax |
| 2. Spouse ownership | Couples with different tax rates | Lender consent, SDLT on mortgaged shares, giving up ownership |
| 3. Form 17 | Married couples with unequal shares | Must reflect real beneficial ownership, 60-day deadline |
| 4. Paying down debt | Landlords with spare cash | Ties up capital, lost leverage |
| 5. Property partnership | Large, actively run family portfolios | Doesn't remove Section 24 itself, HMRC scrutiny |
| 6. Pension contributions | Landlords with salary or trading income | Relief capped at earnings, IHT on pensions from 2027 |
| 7. Selling weaker properties | Portfolios with low-yield, high-debt units | CGT at 18% or 24%, sale costs |
1. Owning through a company
Companies aren't subject to Section 24. A company deducts interest in full and pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000. It also isn't affected by the new property income rates.
Pros: full interest relief; lower tax on profits kept in the business; a flexible vehicle for succession.
Cons: moving existing properties is a market-value disposal for CGT, and SDLT is charged on market value. Incorporation relief can defer the gain if the letting activity is a genuine business, and since April 2026 it must be claimed. Company mortgages can cost more. Money you take out is taxed again as dividends.
Many landlords split the difference: keep existing properties personally and buy new ones in a company. See buying property through a limited company and our worked example on incorporation.
2. Moving ownership to a spouse or civil partner
If one partner pays tax at 40% and the other at 20%, moving beneficial ownership to the lower earner can save tax on the rent. Transfers between spouses or civil partners living together are no gain, no loss for CGT, so there's no CGT on the move.
Pros: cheap and quick where there's no mortgage; also useful later for CGT on a sale.
Cons: it must be a genuine, outright transfer of ownership. Where a share of a mortgaged property moves and the recipient takes on part of the debt, SDLT can be due on that share of the debt. The lender usually has to agree. And the property really does belong to your spouse afterwards.
3. Form 17 and unequal shares
Married couples and civil partners living together are taxed 50:50 on income from jointly held property, whatever their actual shares. If you hold unequal beneficial interests, for example 90:10 under a declaration of trust, you can elect to be taxed on those shares by sending Form 17 to HMRC within 60 days of the declaration. It applies to income from the date of the declaration.
Pros: lets income follow genuine ownership; no CGT where the underlying transfer is between spouses.
Cons: the beneficial interests must really be unequal, and the income must follow them. Form 17 can't be backdated, and joint tenants must first sever to hold unequal shares.
4. Paying down debt
Less borrowing means less restricted interest. It's the simplest response and the one with no tax risk.
Pros: certain; reduces exposure to rate rises.
Cons: ties up capital that may earn more elsewhere; reduces your ability to grow. If the cash comes from selling a property, CGT may be due.
5. A property partnership
A partnership on its own doesn't avoid Section 24: the restriction applies to individuals whether they own alone or in partnership. Its relevance is as a possible step towards incorporation. On the right facts, the partnership SDLT rules in Schedule 15 to the Finance Act 2003 can reduce SDLT when a genuine partnership transfers property to a company owned by the partners.
Pros: potentially large SDLT savings on a later incorporation.
Cons: the partnership must be real, not a label. SDLT anti-avoidance rules, including FA 2003 s75A and a three-year rule for withdrawals after transfers in, are applied closely. HMRC's Spotlight 69 targets one LLP-based scheme specifically. Treat any "off-the-shelf" partnership plan with caution.
6. Pension contributions
Personal pension contributions extend your basic rate band and reduce adjusted net income. That can keep more of your rent in the basic rate band, or restore a personal allowance lost between £100,000 and £125,140.
Pros: relief at your marginal rate; can be very effective around the £100,000 band.
Cons: relief is capped at your relevant UK earnings (or £3,600 gross if higher). Rental income isn't earnings, so a landlord living entirely on rent can't use this at scale. Most unused pension funds also come into the estate for inheritance tax from 6 April 2027, which changes their appeal as a long-term store of wealth.
7. Selling weaker properties
Some properties earn little after interest and Section 24. Selling one and using the proceeds to repay debt on others can lift your overall return.
Pros: cuts debt and restricted interest; simplifies the portfolio.
Cons: CGT at 18% or 24%, reported and paid within 60 days of completion; sale costs; loss of future growth. See selling a buy-to-let.
A quick illustration of combining options
This is an illustration, not a client example. A married couple own six properties. One earns a £30,000 salary and owns all of the portfolio; the other has no income. Rental profit before interest is £60,000, with £30,000 of interest.
At 2027/28 rates, the salary uses the earning spouse's personal allowance and part of their basic rate band. The rent is taxed at 22% on the £20,270 of band left (£4,459) and 42% on the remaining £39,730 (£16,687), less a 22% credit on the interest (£6,600): about £14,550.
If beneficial ownership moves so the other spouse holds the whole portfolio, their own allowance and basic rate band apply. After the £12,570 allowance, £37,700 is taxed at 22% (£8,294) and £9,730 at 42% (£4,087), less the same £6,600 credit: about £5,780.
That's a saving of nearly £8,800 a year, without a company. In practice the couple would need lender consent, would consider SDLT on any mortgage taken over, and would weigh giving up ownership. They might also buy future properties in a company. Combining two simple steps often beats one complex one.
How to choose
Start with three questions:
- What's your marginal rate, now and from 2027/28? Section 24 mainly hurts higher and additional-rate landlords.
- Do you need the income, or will you reinvest it? Companies suit reinvestment far better than extraction.
- What are your plans for the next ten years? Selling, growing and passing property on each point to different answers.
Then put numbers on the short list. Our Section 24 calculator shows what the restriction costs you today. We review the options against your actual figures on a fixed fee agreed upfront, and we respond the same working day.
Common mistakes
- Incorporating without checking the business test or SDLT.
- Signing a declaration of trust and forgetting the 60-day Form 17 deadline.
- Remortgaging to release equity for personal use and assuming the interest qualifies.
- Treating a partnership as a way round Section 24 on its own.
- Deciding on 2026/27 numbers when the 2027/28 rates will apply for years.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
