Seven Ways to Respond to Section 24, Compared

Under Section 24, an individual landlord cannot deduct mortgage interest from rent. A tax credit at the basic rate is given instead: 20% for 2026/27, and 22% from April 2027 when the new property income rates of 22%, 42% and 47% begin. For a higher-rate landlord, the interest is effectively taxed at 40% (42% from 2027) and only about half of that comes back.

No single response fixes this. There are seven common ones, and each has real costs. Set side by side, they make it easier to see which could suit your portfolio.

Summary

1. Company ownership

A company is outside Section 24. It deducts interest in full, pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, and is untouched by the new personal property rates.

The upside is full interest relief, lower tax on profits left in the business and a flexible vehicle for passing wealth on. The downside is that moving existing properties is a disposal at market value for CGT, and SDLT is charged on market value. Incorporation relief can defer the gain where the letting is a genuine business, and since April 2026 the relief must be claimed. Company mortgages may cost more, and money taken out is taxed again as dividends.

Many landlords compromise by keeping existing properties personally and buying future ones through a company. Our property portfolio incorporation service explains the process.

It deducts interest in full, pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, and is untouched by the new personal property rates.

2. Moving ownership to a spouse or civil partner

Where one partner pays 40% and the other 20%, shifting beneficial ownership to the lower earner can reduce the tax on rent. Transfers between spouses or civil partners living together are no gain, no loss for CGT, so the move itself costs no CGT.

It is cheap and quick when there is no mortgage, and it also helps with CGT on a later sale. But it has to be a genuine, outright transfer. If a share of a mortgaged property moves and the recipient takes on part of the debt, SDLT can be due on that debt. The lender usually needs 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 jointly held property income whatever their real shares. If your beneficial interests are genuinely unequal, say 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.

This lets income follow true ownership, and no CGT arises where the underlying transfer is between spouses. The limits are that the interests must really differ, the income must follow them, Form 17 cannot be backdated, and joint tenants must sever the tenancy before holding unequal shares.

4. Repaying debt

Less borrowing means less restricted interest. This is the simplest response and carries no tax risk. It also reduces exposure to rising rates. The cost is that capital is tied up which might earn more elsewhere, and your ability to grow is reduced. If the cash comes from selling a property, CGT may be due.

5. A property partnership

A partnership does not avoid Section 24 by itself, because the restriction applies to individuals whether they own alone or together. Its value lies as a possible stepping stone to incorporation. On the right facts, the partnership rules in Schedule 15 to the Finance Act 2003 can reduce SDLT when a genuine partnership passes property to a company owned by the partners.

The potential saving can be large, but the partnership must be real rather than a label. The SDLT anti-avoidance rules, including FA 2003 s75A and a three-year rule on withdrawals after transfers in, are applied closely, and HMRC's Spotlight 69 targets one LLP-based scheme. Treat any off-the-shelf partnership plan with caution.

6. Pension contributions

Personal pension contributions widen your basic rate band and reduce adjusted net income. That can keep more rent in the basic rate band, or restore a personal allowance lost between £100,000 and £125,140. Relief comes at your marginal rate.

The limit is that relief is capped at your relevant UK earnings, or £3,600 gross if higher, and rent is not earnings. A landlord living wholly on rent cannot use this at scale. Most unused pension funds also enter 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 improve your overall return, cut restricted interest and simplify the portfolio. The price is CGT at 18% or 24%, reported and paid within 60 days of completion, plus selling costs and the loss of future growth. Our capital gains tax service covers the rules.

An illustration of combining steps

This is an illustration, not a client example. A married couple own six properties, all in the name of one spouse, who earns a £30,000 salary. The other spouse has no income. Rental profit before interest is £60,000, with £30,000 of interest.

At 2027/28 rates, the salary uses the working 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). The tax is about £14,550.

If beneficial ownership of the whole portfolio moves to the other spouse, their own allowance and 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. The tax is about £5,780.

That saves 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 up giving away ownership. They might also buy future properties through a company. Two simple steps together often beat one complex one.

Choosing between them

Three questions narrow the field:

1. What is your marginal rate now and from 2027/28? Section 24 mainly hurts higher and additional-rate landlords.
2. Will you spend the income or reinvest it? Companies suit reinvestment far better than extraction.
3. What are your plans for the next decade? Selling, growing and passing property on each point to different answers.

Mistakes we see

• Incorporating without testing the business condition or the SDLT.
• Signing a declaration of trust and missing 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.
• Deciding on 2026/27 numbers when the 2027/28 rates will apply for years.

Speak to our team

Our specialists test your short list against your real figures, and the advice is prepared by our specialist team and reviewed by a Chartered Tax Adviser. If Section 24 is costing you more each year, book a call with our team and we will help you find the response that fits.

This article is general information, not advice. Tax rules change and their effect depends on your circumstances.

Landlords can find more guides and tools at our specialist practice, Property Tax Advisory.