Section 24 Mortgage Interest Relief: Impact on Expat Landlords and Portfolio Investors

No single tax change has reshaped the UK buy-to-let landscape more dramatically than the removal of mortgage interest relief under Section 24 of the Finance Act 2015. Fully in force since April 2020, it transformed leveraged buy-to-let from a tax-efficient income strategy into a potential loss-maker for higher-rate taxpayers — unless the portfolio is structured appropriately. For expat landlords, the impact has particular nuances. This guide explains the rules, illustrates the numbers, and outlines the responses available.

What Was the Old Rule?

Before April 2017, individual landlords could deduct all financing costs — mortgage interest, arrangement fees, and similar finance charges — directly from their rental income before calculating taxable profit. This reduced taxable income in full, meaning that a higher-rate taxpayer saved 40p in tax for every £1 of mortgage interest paid.

A landlord earning £20,000 in rent and paying £12,000 in mortgage interest had taxable rental profit of just £8,000. The mortgage interest was treated exactly like any other allowable expense.

What Does Section 24 Do Instead?

Section 24 replaces the direct deduction with a basic rate tax credit. Landlords can no longer deduct finance costs as an expense. Instead, they pay income tax on their full rental income minus non-finance expenses, and then receive a credit equal to 20% of their finance costs.

For a basic rate taxpayer paying 20% income tax, this is broadly revenue-neutral. For a higher-rate taxpayer paying 40%, it represents a significant increase in the effective tax rate on rental profits.

The Numbers in Practice

Consider a non-resident expat landlord with the following profile:

• Annual rent: £24,000
• Mortgage interest: £12,000
• Other allowable expenses: £3,000
• UK personal allowance: available (EEA resident, or UK national)

Under the old rules (pre-2017):

• Taxable profit: £24,000 − £12,000 − £3,000 = £9,000
• At 20% income tax: £1,800 tax payable

Under Section 24 (2026):

• Taxable income: £24,000 − £3,000 = £21,000
• Tax on £21,000 at 20% (assuming within basic rate band): £4,200
• Less 20% credit on £12,000 finance costs: −£2,400
• Net tax: £1,800

For a basic rate taxpayer, the outcome is unchanged.

Now assume the same landlord has other UK income (or overseas income that pushes them into higher rates):

Higher-rate taxpayer under Section 24:

• Taxable income: £24,000 − £3,000 = £21,000
• Tax on £21,000 at 40%: £8,400
• Less 20% credit on £12,000: −£2,400
• Net tax: £6,000

Compare this to the pre-Section-24 position where the same landlord would have paid 40% on £9,000 = £3,600. The tax bill has increased by £2,400 — a near-doubling in this example.

The Non-Resident Twist: Personal Allowance Uncertainty

For expat landlords, the picture is complicated by uncertainty around the UK personal allowance. UK nationals and residents of EEA countries (and countries with appropriate treaty provisions) are entitled to the £12,570 personal allowance. However, nationals of many other countries and UK citizens in certain jurisdictions may not be entitled to it for UK rental income purposes.

If the personal allowance is unavailable, more rental income is pushed into higher rate bands, and the Section 24 restriction bites harder. The personal allowance position should be confirmed with a UK tax adviser based on your specific residency and nationality.

The "Phantom Profit" Problem

Section 24 creates the perverse outcome of generating tax liability even when the property runs at a cash loss. If mortgage interest exceeds net rent minus expenses — a situation common at high loan-to-value ratios — the landlord still has taxable income and faces a tax bill despite making no economic profit.

This is not theoretical. Consider:

• Rent: £15,000
• Mortgage interest: £14,000
• Other expenses: £2,000
• Net cash position: −£1,000 (loss)

Under Section 24:

• Taxable income: £15,000 − £2,000 = £13,000
• Tax at 40%: £5,200
• Less credit: 20% × £14,000 = £2,800
• Net tax: £2,400

The landlord has paid £1,000 more than they received in rent, yet owes £2,400 in income tax on the transaction. This is cash-flow destruction.

How Section 24 Affects Portfolio Decisions

The implication for expat landlords is stark: Section 24 makes leveraged buy-to-let unattractive or loss-making for many higher-rate taxpayers operating in personal name. The higher the loan-to-value ratio, the greater the impact.

This has driven several strategic responses:

Incorporation: Moving properties to a limited company structure avoids Section 24 entirely, since companies deduct finance costs in full against corporation tax. However, incorporation triggers CGT and SDLT on transfer, making it expensive for existing owners. For new purchases, the company route is increasingly standard for higher-rate investors.

Reducing leverage: Paying down mortgages reduces the finance cost subject to restriction. Landlords with strong cash reserves have used savings or remortgage proceeds to reduce LTV. This reduces the Section 24 impact but ties up capital.

Disposing of lower-yield properties: Properties where rental yields are thin and LTV is high are most damaged by Section 24. Some portfolio landlords have consolidated, selling lower-yielding stock and concentrating on higher-yielding, lower-leveraged properties.

Spouse/partner ownership structures: Where a landlord has a lower-earning spouse or civil partner, transferring ownership (or a beneficial interest) to the lower earner can shift income into lower tax bands. This must be done correctly to be effective; a deed of trust is typically required and HMRC must be notified.

Investing for capital growth rather than income: Some landlords have pivoted towards properties expected to deliver stronger capital appreciation and lower current income, reducing the impact of income tax changes.

Unused Finance Cost Relief: Carry Forward

Where the 20% tax credit exceeds your tax liability — which can happen if your rental income is modest — the unused credit can be carried forward to future years. It does not expire. Landlords in this position should ensure they are tracking the carry-forward balance and claiming it appropriately on their Self Assessment returns.

What Cannot Be Done

HMRC has been explicit that Section 24 applies to all individual landlords receiving rental income from UK residential property, regardless of residency, nationality or any other factor. You cannot avoid it by:

• Asserting your main home is abroad
• Using a trust to hold the property (unless the trust itself is a company)
• Claiming it constitutes a furnished holiday let (different rules apply, but those are also being restricted — see below)

Furnished Holiday Lettings: An Important 2024 Change

The Furnished Holiday Lettings (FHL) regime historically allowed landlords of qualifying short-term lets to treat their properties as trading businesses, deducting finance costs in full. This was the primary legal carve-out from Section 24 for individual landlords. The government abolished the FHL regime with effect from April 2025, removing this advantage. Landlords operating holiday lets are now subject to the same Section 24 rules as long-term residential landlords.

The Section 24 Review Argument

There have been periodic calls to reverse or modify Section 24. Critics argue it has reduced rental supply by making buy-to-let less viable for individual landlords, contributing to rising rents. As of 2026, no reversal is proposed in legislation. Landlords should plan on the current rules remaining in place.

How Global Investments Can Help

Section 24 has made UK buy-to-let tax planning considerably more complex for non-resident and higher-rate taxpayers. The right response depends on your holding period, LTV ratios, income profile in both the UK and your country of residence, and your long-term wealth objectives. Global Investments advises internationally mobile clients on the full range of property tax planning strategies — from ownership structure to financing architecture to cross-border tax treaty interaction.

We work with specialist UK property tax advisers to ensure our clients' portfolios are structured as efficiently as possible. Contact us to review your position.

This article provides general information only and does not constitute personalised tax advice. Tax legislation changes; individual circumstances vary. Seek professional advice before acting. As of 2026.