Section 24 of the Finance (No. 2) Act 2015 was phased in over four tax years, ending 2020-21, and replaced the old mortgage interest deduction for individual UK landlords with a 20 percent tax credit. The change shifted higher-rate landlords from receiving 40 percent relief on their interest costs to 20 percent. Six years into the post-section-24 regime, the impact on retail buy-to-let portfolios is well documented and stark.
This article works through the maths on a typical £300,000 buy-to-let in 2026, explains why the same property held inside a limited company produces a materially better outcome, and addresses the question of whether incorporating an existing portfolio is worth the friction.
The mechanic, in one paragraph
Under the old regime, a personal-name landlord deducted mortgage interest from rental income before calculating taxable profit. A higher-rate taxpayer with £30,000 of rent, £18,000 of interest and £5,000 of other costs had £7,000 of taxable profit and a tax bill of £2,800 at 40 percent. Under section 24, the same landlord has £25,000 of taxable profit (£30,000 of rent minus only the £5,000 of other costs), tax of £10,000 at 40 percent, then a tax credit of £3,600 (20 percent of the £18,000 of interest). Net tax liability: £6,400, against a real economic profit of £7,000. The effective tax rate on the actual cash profit is over 90 percent.
The 2026 maths on a £300,000 buy-to-let
Take a higher-rate taxpayer landlord with a single £300,000 property, mortgaged at 75 percent LTV (£225,000 loan), let at £1,500 per month. Mortgage rate of 5.5 percent on a buy-to-let interest-only product (typical for a fixed product taken in 2024-25):
| Item | Annual amount |
|---|---|
| Gross rent (£1,500 × 12) | £18,000 |
| Mortgage interest (£225,000 × 5.5%) | £12,375 |
| Other deductible costs (insurance, maintenance, agent, voids) | £3,500 |
| Cash profit before tax | £2,125 |
| Taxable profit (rent minus non-interest costs) | £14,500 |
| Income tax at 40% | £5,800 |
| Tax credit on interest (20% of £12,375) | (£2,475) |
| Net tax | £3,325 |
| Cash profit after tax | (£1,200) |
The same property generates a real economic profit of £2,125 a year and produces a tax bill of £3,325. The landlord's after-tax cash position is negative by £1,200 per year. The property is, for tax purposes, loss-making despite being economically profitable.
The same property in a limited company
Section 24 applies to individuals only. A property held in a UK limited company deducts mortgage interest as a normal business expense, with no restriction. The same property held in a company:
| Item | Annual amount |
|---|---|
| Gross rent | £18,000 |
| Mortgage interest (deductible in full) | £12,375 |
| Other deductible costs | £3,500 |
| Taxable profit | £2,125 |
| Corporation tax at 19% (small profits rate, profits below £50,000) | £404 |
| Cash profit after tax in the company | £1,721 |
The corporate-held version of the same property produces £1,721 of after-tax profit retained inside the company - around £2,900 better off per year than the personal-name version. Withdrawing that profit as dividends triggers a separate dividend tax (8.75 / 33.75 / 39.35 percent depending on band, after the £500 dividend allowance), so the saving is reduced if the cash is needed personally. For a landlord who can leave the profit in the company to fund further property purchases, the structural advantage is large.
Why landlords have not all incorporated
Three frictions, in order of importance:
1. Stamp duty land tax on the transfer. Transferring a property from personal name into a limited company is treated as a sale at market value. Stamp duty is payable by the receiving company at the buy-to-let rates (which include a 5 percent surcharge, as set by the SDLT residential rate guidance). On a £300,000 property the SDLT is around £17,500 - around 5.8 percent of the value - payable up front in cash. For a portfolio of five properties, the total SDLT cost can easily exceed £80,000.
2. Capital gains tax on the deemed disposal. The transferring landlord is treated as having sold the property to the company at market value, triggering CGT on any embedded gain. For a property bought in 2010 at £150,000 and now worth £300,000, the gain of £150,000 produces a CGT bill of around £34,000 at the higher residential rate (less the annual exempt amount).
3. Mortgage refinancing. The mortgage on the personal property does not transfer to the company; the company has to take out a new buy-to-let mortgage at the buy-to-let-corporate rate (typically 0.5 to 1 percent above the equivalent personal-name rate). For a portfolio of properties, this is a substantial increase in interest costs.
The combination of SDLT, CGT and refinancing costs typically takes 8 to 15 years of corporate-tax-saving to break even on the transition. The maths therefore favours: starting any new property purchase inside a company, and leaving existing personal-name properties in personal name unless there is a very long planned hold.
Section 162 incorporation relief
Landlords with a portfolio that constitutes a "business" under the case law (typically 10+ properties, with active management) may qualify for incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992, which defers the CGT charge on the transfer in exchange for shares in the receiving company. This does not avoid SDLT (although for partnerships there may be relief under FA 2003 schedule 15 paragraph 18) and does not avoid CGT permanently - the deferred gain becomes payable when the shares are eventually sold - but it removes the up-front CGT obstacle for landlords who qualify.
The qualification test for section 162 is fact-specific and contested. HMRC takes the position in CG65700 that property letting alone is not a business; active management, scale and intention to grow are required. Landlords considering this route need professional advice; there is real disallowance risk if HMRC successfully argues the activity does not qualify.
What this means for a landlord deciding now
Three rules of thumb that fall out of the post-section-24 environment:
- Any new property: corporate. No exceptions. The corporate route is structurally cheaper for higher-rate taxpayers, and the up-front frictions only exist on transfers, not on new acquisitions.
- Existing personal-name property: model the break-even. A property with low embedded gain and a long planned hold may justify incorporation. A property with high embedded gain or a likely sale within 10 years almost certainly does not.
- If the property is loss-making after section 24: review whether to sell. A property generating negative cash flow after tax is producing a return only if capital appreciation exceeds the annual cash drain plus the return that could be earned on the equity elsewhere. For a leveraged buy-to-let in 2026, the bar is high.
The honest summary: the buy-to-let case for higher-rate taxpayers in personal name has been fundamentally weakened by section 24, and the rate environment of 2024-26 has made it worse. Landlords who bought before 2015 expecting the old tax treatment have been progressively disadvantaged over a decade. The corporate route remains attractive, but the up-front cost of getting there is the obstacle most existing portfolios cannot clear.