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Q: What is Section 24 and how does it affect landlords?

Section 24 of the Finance Act 2015 phased out the ability for individual landlords to deduct mortgage interest from rental income before paying tax. Fully in effect since April 2020, landlords with personal (not company) ownership can no longer deduct mortgage interest as a business expense. Instead, they receive a 20% basic rate tax credit on mortgage interest paid. For higher and additional rate taxpayers, this means paying income tax on rental income before the 20% credit — significantly increasing the tax bill compared to the pre-2017 system. Ltd company landlords are unaffected by Section 24 and can still deduct mortgage interest as a business expense.

Q: Is it better to own a buy-to-let in a limited company?

There is no universal answer. For higher rate taxpayers buying new properties, a limited company (SPV) often provides better cashflow because corporation tax is lower than income tax and mortgage interest remains deductible. However, company mortgages typically have higher rates than personal mortgages, the set-up and accountancy costs add overhead, and extracting profits via dividend incurs additional tax. For lower rate taxpayers with one or two properties, the personal route may still be simpler. The decision depends on your marginal tax rate, number of properties, long-term plans, and whether you intend to retain profits within the company.

Q: How much deposit do I need for a buy-to-let mortgage?

Most buy-to-let lenders require a minimum 25% deposit (75% LTV). Some products are available at 20% or even 15% deposit, but the rates are significantly higher. For limited company purchases, lenders typically also require 25%–30% deposit. The rental coverage ratio — the rent must cover the mortgage interest by 125%–145% at a stressed rate — also affects how much you can borrow, sometimes imposing a lower LTV than the minimum.

Q: What is the stamp duty surcharge on buy-to-let properties?

From October 2024, buyers of additional residential properties in England pay a 5% stamp duty surcharge on top of the standard SDLT rates (increased from 3%). This applies whether purchasing personally or through a company. On a £200,000 buy-to-let, the surcharge alone adds £10,000 to the standard SDLT bill. Scotland charges a 6% Additional Dwelling Supplement (ADS) on the full purchase price. Use our stamp duty calculator to see the exact SDLT breakdown for your purchase price and buyer type.

Section 24 tax, net cashflow, and a 10-year projection — personal or Ltd company.

Property purchase price

Expected monthly rent

Mortgage amount (interest-only)

Mortgage interest rate

Your personal income (non-rental)

Ownership structure

Personal Ltd company

Monthly cashflow (after tax)

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0.00% gross yield Personal ownership

Annual income summary

Tax calculation

Item	Annual

10-year projection (3% annual rent & capital growth assumed)

Year	Annual rent	Property value	Annual cashflow

AI Analysis

How Section 24 changed buy-to-let in the UK

Before April 2017, landlords could deduct mortgage interest from rental income before calculating their tax liability. A £1,000/month rent with £600 mortgage interest meant only £400 was taxable. Section 24, fully effective from April 2020, ended this. Now the full £1,000 is taxable income, with a 20% tax credit on the £600 interest applied afterwards. For a basic rate taxpayer this is roughly neutral. For higher rate taxpayers, it means paying 40% on income that previously attracted 20% — a dramatic shift that has made many personally owned BTLs significantly less profitable.

Personal ownership vs limited company — the core trade-off

Limited companies are not subject to Section 24 and can still deduct mortgage interest as a business expense. Corporation tax rates (19%–25%) are lower than higher rate income tax (40%), improving cashflow for higher rate taxpayers. The trade-offs: company mortgages carry higher rates than personal mortgages (typically 0.3%–0.7% above), reducing that advantage; set-up and ongoing accountancy costs add £500–£2,000 per year; and extracting profits as dividends incurs additional tax. For landlords building a portfolio and retaining profits in the business, the company structure often wins. For those intending to take all income out immediately, the maths is more nuanced.

Rental coverage and borrowing capacity

Buy-to-let lenders assess affordability differently from residential mortgages. Rather than income multiples, they use a rental coverage ratio: the monthly rent must cover 125%–145% of the monthly mortgage interest at a stressed rate (typically around 5.5%–6%). This can significantly limit the loan size on lower-yielding properties. A property renting at £700/month at a 125% coverage ratio on a 5.5% stressed rate supports roughly £100,000 of borrowing. If the property value requires a higher loan, you need a larger deposit or higher rent.

The 10-year picture

Buy-to-let returns come from two sources: rental income (yield) and capital growth. Historically, UK residential property has delivered average capital growth of around 3%–5% per year over the long term, though with significant regional and cyclical variation. Leicester has typically outperformed the national average for yield while delivering solid capital growth. Our calculator models a conservative 3% annual growth scenario so you can see both the income trajectory and the projected property value at year 10.

Buy-to-let questions

What is Section 24 and how does it affect landlords?

Section 24 removed the ability for individual landlords to deduct mortgage interest from rental income before tax. Since April 2020, landlords only receive a 20% tax credit on interest paid. Higher rate taxpayers pay income tax on the full rent and then apply the credit — dramatically increasing their tax bill compared to pre-2017. Ltd company landlords are unaffected.

Is it better to own a buy-to-let in a limited company?

Often yes for higher rate taxpayers buying new properties — corporation tax is lower than income tax and mortgage interest remains deductible. However, company mortgages cost more, accountancy adds overhead, and dividend extraction adds another tax layer. The answer depends on your marginal tax rate, number of properties, and long-term strategy. Always take specialist tax advice before deciding.

How much deposit do I need for a buy-to-let mortgage?

Most lenders require a minimum 25% deposit (75% LTV). The rental coverage ratio — rent must cover 125%–145% of the mortgage interest at a stressed rate — may also limit how much you can borrow, sometimes requiring a larger deposit than the LTV minimum alone would suggest.

What tax do landlords pay on rental income?

Individual landlords pay income tax on rental profits at their marginal rate (20%, 40%, or 45%), with a 20% tax credit on mortgage interest replacing full deductibility. Allowable deductions include agent fees, insurance, repairs, and accountancy. Ltd companies pay corporation tax (19%–25%). Capital Gains Tax applies on sale at 18% or 24% for residential property.

What is the stamp duty surcharge on buy-to-let properties?

A 5% additional property surcharge applies to all buy-to-let purchases in England (increased from 3% in October 2024), on top of standard SDLT rates. On a £200,000 purchase, this adds £10,000 to the stamp duty bill. Scotland charges a 6% Additional Dwelling Supplement on the full purchase price.

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