How Section 24 Quietly Turned Profit Into Loss
Here's the conversation I have with would-be landlords more than any other. They've found a property, the gross yield looks healthy, the rent covers the mortgage with room to spare, and they're ready to go. Then I ask one question — "what tax band are you in?" — and the whole deal changes shape.
Because since the Section 24 rules fully landed in 2020, a higher-rate taxpayer with a mortgaged buy-to-let isn't taxed the way they think they are. You're no longer taxed on your profit. You're taxed on your rent, minus your running costs, and then handed back a flat 20% credit on the mortgage interest. If your marginal rate is 40% or 45%, that 20% credit doesn't cover the gap — and the deal that looked positive on paper can bleed money every month.
The Two Numbers That Actually Matter
Gross yield sells the property. After-tax cash flow tells you whether you can afford to hold it. The calculator above works out both, but the one to watch is the monthly figure after tax — and it shows it two ways, because who owns the property changes the tax completely.
Worked Example: The Same Property, Two Very Different Outcomes
Take a £250,000 property bought with a 25% deposit (a £187,500 interest-only mortgage at 5%), rented at £1,300/month, with typical costs and three void weeks a year:
- Net operating income (rent after voids and running costs): around £11,080
- Mortgage interest: £9,375/year
- Pre-tax cash flow: about £1,705/year — looks fine
Now apply the tax:
- Personal, higher-rate (40%): taxed on the £11,080 profit before interest = £4,432, minus a 20% credit on the £9,375 interest (£1,875) = a £2,557 tax bill. That turns +£1,705 into roughly −£852 a year. You're paying to be a landlord.
- Limited company: interest is fully deductible, so the company is taxed on the real £1,705 profit at 19% = £324, leaving about +£1,381 a year.
So Should You Use a Limited Company?
Not automatically. The company route wins on interest relief and corporation tax (19% up to £50,000 of profit, 25% above £250,000, with marginal relief between), but it carries real costs the headline comparison hides:
- Higher mortgage rates and fees on limited-company BTL products — often 0.5–1% more than personal rates.
- Accountancy fees for annual accounts and a corporation tax return — typically £800–£1,500/year.
- Tax to get money out: profit inside the company is cheap, but paying yourself dividends triggers dividend tax on top.
- SDLT and CGT on transferring existing personal properties into a company — usually prohibitive for portfolios you already own.
The rule of thumb: companies tend to suit higher-rate taxpayers building a mortgaged portfolio they'll reinvest in, while basic-rate taxpayers and low-leverage buyers often stay better off personally. The calculator shows both so you can see where your specific deal lands.
Curious how your city compares? We ran the average property in nine major UK cities through these exact rules — see which cities lose money for higher-rate landlords in 2026.
Costs Landlords Routinely Forget
- Voids: even a great property sits empty between tenants — budget 2–4 weeks a year.
- Management: 8–15% of rent if you use an agent; your time if you don't.
- Maintenance: 1–2% of property value a year, more for older stock.
- Compliance: gas safety, EPC, and selective/HMO licensing where it applies.
- Stamp duty surcharge: the extra 5% on additional properties — work it out with our Stamp Duty Calculator.