Introduction: Why Buy-to-Let Tax Relief Matters

For decades, property investment has been a cornerstone of wealth creation in the UK. From first-time landlords entering the rental market to seasoned investors managing multi-million-pound property portfolios, understanding the rules around buy-to-let mortgage interest relief is crucial for maximising returns and safeguarding profitability.

At CIGMA Accounting — with offices in Wimbledon, Farringdon and Fulham Broadway — our tax specialists work closely with London landlords and high-net-worth investors to optimise property structures under the latest Section 24 rules.

The phased removal of full mortgage interest relief, completed in April 2020, has fundamentally changed the tax landscape. Before this reform, landlords could offset 100% of their mortgage interest costs against rental income, directly reducing their taxable profit. Today, however, that system has been replaced with a flat-rate 20% tax credit—applied regardless of whether you pay basic-rate (20%), higher-rate (40%), or additional-rate (45%) income tax.

For basic-rate taxpayers, this change is broadly neutral. But for higher and additional-rate taxpayers, the impact is severe. Many landlords now face inflated tax bills, with effective tax rates climbing well above their headline band. Some are even pushed into higher thresholds, triggering loss of child benefit, reduced allowances, and higher effective marginal rates of tax.

This guide explores:

• How mortgage interest tax relief works under the current rules

• The financial impact on landlords across different tax bands

• Mitigation strategies, from incorporation into limited companies to restructuring finance

• Why specialist business tax planning in London has become essential for high-value landlords, HNWIs, and non-resident investors managing UK rental portfolios

By the end, you’ll have a clear picture of how to adapt your strategy, reduce tax leakage, and preserve your long-term rental income.

Section 1: What is Buy-to-Let Mortgage Interest Relief?

A buy-to-let mortgage is a type of loan designed specifically for property investors purchasing homes to rent out. For many years, landlords enjoyed a generous tax break: they could deduct the full amount of mortgage interest as an expense before calculating their taxable rental profits.

How the Rules Worked Historically

• Before April 2017, landlords could offset 100% of mortgage interest costs against rental income. The relief was applied at the landlord’s marginal tax rate: 20%, 40%, or 45%.

• 2017 to 2020 – The government introduced Section 24 of the Finance Act 2015, phasing out higher and additional-rate relief. Each year, the deductible portion of mortgage interest shrank, while a basic-rate (20%) credit replaced it.

• Since April 2020, all landlords, regardless of income, have received only a flat 20% tax credit on their mortgage interest.

This reform was positioned as a way to “level the playing field” between landlords and first-time buyers. Still, in practice, it has significantly increased tax bills for high-net-worth landlords, especially those in London and the South East with larger portfolios and higher incomes.

Worked Example

Let’s illustrate the impact with numbers:

• Rental income: £30,000

• Mortgage interest: £10,000

Old System (40% taxpayer):
Taxable profit = £30,000 – £10,000 = £20,000
Tax at 40% = £8,000

New System (post-April 2020):
Taxable profit = £30,000 (no deduction for interest)
Tax at 40% = £12,000
Less 20% tax credit on £10,000 = £2,000
Final tax bill = £10,000

That’s a £2,000 increase in tax liability, solely due to the change in interest relief rules. For landlords with larger mortgages, the increase can run into tens of thousands per year.

Why It Matters for Landlords Today

• Basic-rate taxpayers are broadly unaffected.

• Higher and additional-rate taxpayers bear the brunt, often being pushed into higher tax bands.

• The reform interacts with other thresholds—such as the personal allowance taper and High-Income Child Benefit Charge (HICBC)—creating hidden tax cliffs.

This means landlords with significant property income may face effective tax rates above 50%, making proactive landlord tax planning in London essential to preserve profitability.

Section 2: Who is Affected?
 

1. Individual Landlords

Anyone holding buy-to-let properties in their personal name is directly impacted. This includes first-time landlords with a single rental property and experienced investors managing multiple units. Since interest can no longer be deducted in full, taxable income appears higher, often triggering:

• Loss of personal allowance once adjusted income exceeds £100,000.

• High-Income Child Benefit Charge for those earning over £50,000.

• Exposure to higher-rate (40%) or additional-rate (45%) tax bands.

2. High-Net-Worth Individuals (HNWs)

For high-net-worth landlords in London and the South East, where mortgages and property values are larger, the changes are especially punitive.

• A portfolio generating £150,000 in rental income and £60,000 in interest can lead to an extra £12,000+ in tax liability annually.

• Many HNWs are being forced to restructure holdings into property investment companies to restore tax efficiency.

3. Accidental Landlords

Homeowners who move and rent out their former residence—often with an outstanding residential mortgage—are often caught off guard without adequate planning.

• Example: A professional relocating abroad may face unexpected tax liabilities on rent, despite modest yields.

4. Non-Resident Landlords

Even if you live outside the UK, rental income from UK property is subject to UK income tax. The removal of higher-rate interest relief means non-resident landlords face the same restrictions as domestic landlords, often with fewer opportunities to offset tax.

Who is Not Affected? – Limited Company Landlords

The reforms do not apply to properties held within a limited company structure.

• Companies can continue deducting the full amount of mortgage interest as a business expense.

• Corporation Tax (currently 25%) is typically lower than higher personal income tax rates.

• However, the extraction of profits (dividends or salaries) must be considered in overall planning.

For many landlords, incorporating their portfolio has become one of the most effective strategies for mitigating the effects of Section 24 restrictions.

1. Individual landlords – directly impacted.

2. High-net-worth individuals (HNWs) with large mortgage portfolios are severely affected, as tax liabilities escalate rapidly.

3. Accidental landlords – e.g., homeowners who rent out former residences.

4. Non-resident landlords – still subject to UK income tax.

Who is not affected?

• Limited company landlords – Companies can still deduct full mortgage interest as a business expense.

Section 3: Strategic Options for High-Net-Worth and Portfolio Landlords

The impact of Section 24 has been most pronounced for high-net-worth landlords in London and across the UK who manage large buy-to-let portfolios. Traditional ownership structures have become significantly less tax-efficient, making strategic restructuring essential.

One of the most widely adopted—and effective—approaches is incorporation through a limited company buy-to-let structure.

3.1 Incorporation – Limited Company Route

Setting up a property investment company enables landlords to bypass mortgage interest relief restrictions that apply to personally owned properties.

Advantages of Incorporation

 Full Deduction of Mortgage Interest
Unlike individual landlords, companies can deduct 100% of mortgage interest as a business expense. This ensures that taxable profit reflects actual rental profit rather than inflated figures created by Section 24.

 Corporation Tax at 25% vs. Higher Income Tax Bands
From April 2025, corporation tax is charged at 25% on profits over £250,000. This remains significantly lower than the 40% higher-rate and 45% additional-rate personal income tax bands. For HNWs with significant rental income, the savings can be substantial.

Example:

• Rental income: £200,000

• Mortgage interest: £80,000

• Personal ownership (45% taxpayer): Tax on £200k minus £16k (20% credit) = £74,000 tax.

• Company structure: Tax on £120k at 25% = £30,000 tax.

• Annual saving: £44,000

This illustrates why many portfolio landlords are transitioning to limited company ownership.

Flexible Profit Extraction
Within a company, landlords can choose how to extract profits:

• Salary (deductible for corporation tax).

• Dividends (taxed separately but with lower rates than income tax).

• Director’s loans (providing liquidity without immediate tax).

This flexibility enables strategic tax planning and deferral of liabilities.

Succession & Estate Planning Benefits
Company structures are far easier to align with trust advisory services in London, UK, inheritance tax planning, and family business structuring. For example:

• Shares in a property investment company can be gifted to children gradually, using allowances.

• Trusts can be layered into ownership to achieve discreet legacy planning in London.

• Cross-border families (non-doms, expats) can integrate company ownership with international tax planning.

Disadvantages of Incorporation

 Higher Mortgage Interest Rates
Buy-to-let mortgages for limited companies typically carry slightly higher interest rates and more stringent eligibility requirements. While the tax benefits often outweigh this, it remains an essential consideration for landlords with highly leveraged portfolios.

 Incorporation Costs & Stamp Duty
Moving existing personally owned properties into a company can trigger Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) liabilities. Careful planning and the use of partnership incorporation reliefs are often necessary.

Administrative Burden
Running a company requires:

• Statutory accounts under FRS 102/105.

• Corporation tax returns.

• Ongoing compliance and bookkeeping.

For landlords with large portfolios, these costs are usually marginal compared to the tax savings, but they should be factored in.

Is Incorporation Right for You?

The decision depends on:

• Portfolio size and debt levels.

• Current and future income tax exposure.

• Succession and estate planning objectives.

• Willingness to manage increased compliance.

For many high-net-worth landlords in London, the limited company route is now the default strategy for long-term wealth preservation. However, tailored advice is essential, as every portfolio is unique.

3.2 Diversification of Structure

Many landlords adopt a hybrid model, holding some properties personally and others through a company. This allows:

• Protection of high-yield, low-mortgage properties under personal ownership.

• Leveraged, highly mortgaged properties within a company to maximise relief.

3.3 Wealth & Estate Planning

For HNWs, structuring portfolios with trusts, offshore holding companies, and succession vehicles is vital. Linking this to trust advisory services ensures efficient estate transfer and tax minimisation.

For many property investors in Central and South London, incorporating through our Wimbledon or Farringdon office provides access to in-person strategic sessions, complemented by comprehensive digital modelling support.

Section 4: Broader Market Impacts

• The removal of complete buy-to-let mortgage interest relief has not only reshaped how landlords plan their taxes but also created ripple effects across the wider UK housing market. From London landlords to regional investors, the impacts are being felt in supply, rents, and the very structure of the property investment industry.

  4.1 Rental Supply Decline

  One of the most immediate consequences of Section 24 and subsequent reforms has been a reduction in available rental stock. Many smaller landlords—particularly those with high leverage and limited cash flow—have found the new tax regime unsustainable.

• Exits from the market: Data suggests thousands of landlords have sold properties since 2020, with higher-rate taxpayers disproportionately represented.

• Impact on tenants: Fewer available homes create increased competition, particularly in urban centres like London, Birmingham, and Manchester.

• For high-net-worth landlords who remain in the market, this creates an opportunity: reduced competition from “accidental landlords” allows professional investors to consolidate market share.

  4.2 Increased Rents

  With fewer properties available and demand remaining strong, rental prices have risen significantly across the UK. In London, average rents have surged by double digits in recent years, partially driven by landlords passing increased tax burdens and mortgage costs onto tenants.

• Tenant affordability crisis: While landlords recoup some losses through higher rents, tenants face mounting affordability issues.

• Portfolio resilience: Larger landlords with diversified holdings are better positioned to manage rising interest costs and regulatory challenges, while still maintaining profitability.

• This shift underscores why buy-to-let tax planning in London is now about more than just compliance—it’s about designing resilient strategies that anticipate market shifts.

  4.3 Shift Toward Professionalisation

  Historically, the buy-to-let sector attracted individuals with one or two properties. Section 24 has changed that landscape, accelerating a shift toward professional, incorporated ownership models.

• Smaller landlords exiting: Many accidental landlords—those who let out former homes or inherited property—have chosen to sell up.

• Consolidation of power: Large-scale landlords and property investment companies are stepping in, often using limited company structures to maintain tax efficiency.

• Higher barriers to entry: With stricter mortgage lending criteria, increased regulatory oversight, and reduced tax relief, the market now favours experienced investors with professional advice.

• Reduced rental supply, worsening housing shortages.

• Higher rents, exacerbating affordability issues.

• Greater concentration of ownership, shifting power to professional landlords and institutions.

• From an investor’s perspective, however, this environment rewards strategic planning and scale. High-net-worth landlords who engage in structured tax planning, legacy planning, and corporate restructuring are positioned not just to survive—but to thrive—as the sector matures.

  CIGMA Insight:
  At CIGMA Accounting, we support landlords across London, Surrey, and the wider South East in navigating these challenges. Our services include buy-to-let incorporation advice, inheritance tax planning for landlords, and bespoke property structuring—ensuring our clients remain ahead of regulatory and market shifts.

  This transition mirrors trends in other asset classes, where scale, structuring, and sophistication provide a competitive advantage.

  4.4 The Long-Term Outlook

  For UK policymakers, the long-term challenge of buy-to-let tax reform lies in balancing fairness with housing market stability. While Section 24 was designed to “level the playing field” between landlords and homeowners, the practical outcome has been far more complex.

  Policy Intent vs Market Reality

• Intended goal: Discourage speculative landlords, improve affordability for first-time buyers, and reduce perceived tax advantages enjoyed by property investors.

• Actual outcome: Instead of increasing homeownership, reforms have reduced rental supply, pushed up rents, and concentrated ownership among larger, incorporated landlords.

• This divergence highlights a policy paradox: while landlords were targeted to create fairness, tenants may be the ones paying the price through higher rents and restricted choice.

  Evolving Investor Landscape

  The future of the UK rental market is likely to be dominated by:

• Professional landlords operating via limited companies.

• Institutional investors such as pension funds and real estate trusts.

• High-net-worth individuals (HNWIs) who leverage advanced property structuring London strategies, including trusts, Family Investment Companies (FICs), and cross-border ownership models.

• Small-scale and accidental landlords will continue to decline, as tax pressure, compliance requirements, and rising borrowing costs erode their margins.

  Impact on Housing Policy

  The government may face growing pressure to address the unintended consequences:

• Tenant affordability crisis: Renters are disproportionately affected by reforms that were not designed with them in mind.

• Housing shortage: With fewer landlords investing in rental stock, demand outstrips supply.

• Policy reversals or refinements: Future governments may reconsider aspects of landlord taxation to stabilise the private rental sector.

• Investor Opportunities

  For well-prepared landlords, these shifts represent opportunity:

• Consolidation potential: With smaller landlords exiting, portfolios can be expanded at competitive prices.

• Structuring advantage: By using buy-to-let incorporation advice UK and strategic estate planning, investors can maintain profitability even in a high-tax environment.

• Generational wealth strategies: Integrating property ownership with inheritance tax planning for landlords ensures that wealth is not only preserved but also passed on efficiently.

  CIGMA Perspective:

  At CIGMA Accounting, we see the long-term outlook as a call to sophistication. Successful landlords will be those who treat property investment like a business—integrating tax planning, corporate structuring, and legacy strategies into a cohesive plan. Our team supports London and South East landlords in navigating this shift, ensuring their portfolios remain resilient for decades to come.

Section 5: Buy-to-Let Mortgage Tax Planning Strategies

5.1 Offset Mortgages

An offset buy-to-let mortgage links your mortgage to a savings/current account. The cash you hold “offsets” the balance on which interest is charged (e.g., £400k mortgage, £60k offset cash → interest charged on £340k).

Why does it help under Section 24:

• You can’t deduct finance costs from rental profits any more (you only get a 20% tax credit), so the most reliable way is to pay less interest in the first place.

• Lower interest outflow = better after-tax cash flow. (Note: reducing interest won’t lower your taxable rental profit under Section 24, but it does reduce the interest for which you’d only receive a 20% credit. The cash saving usually beats the minor loss of credit.)

Good use-cases

• High-rate and additional-rate landlords with healthy liquidity.

• Portfolio investors want a flexible “rainy-day” buffer while suppressing interest costs.

Cautions

• Offset rates can be slightly higher. Model the net benefit (interest saved minus any higher rate and the smaller 20% credit).

• Keep a clear separation of personal vs property business funds for record-keeping.

Quick example (illustrative):

Interest without offset: £24,000 → 20% credit = £4,800
With £60k offset @ 6%: interest falls by ~£3,600 → credit drops by £720
Net cash is better off by ~£2,880 p.a.

Consider pairing this with refinancing analysis and portfolio structuring in a Business Tax Planning London review.

5.2 Pension Contributions

Using pensions remains one of the most effective ways to counter the Section 24 squeeze—for both individual and company-landlord structures.

Individuals (personal ownership)

• Tax relief at marginal rates on personal contributions up to the annual allowance (currently widely referenced at £60k, subject to taper for very high income), with carry-forward available (up to three prior years if you had allowance/earnings).

• Contributions can extend your basic-rate band or reduce adjusted net income, helping with:

  • Personal allowance taper (>£100k income).

  • High-Income Child Benefit Charge (>£50k income).

• For higher/additional-rate landlords, redirecting cash towards a SIPP/SSAS can materially reduce overall tax while building retirement capital.

Companies (property held via a company)

• Employer pension contributions by your property company are corporation tax deductible if wholly and exclusively for the trade and within pension rules—often more efficient than salary/dividends.

Cautions & coordination

• Watch the annual allowance taper and lifetime funding plans.

• Cash flow: Pension funds are locked for retirement, addressing model liquidity needs.

• Coordinate with IHT and pension death-benefit nominations to avoid creating an IHT problem elsewhere (see Inheritance Tax & Pensions Guide).

5.3 Family Structuring

Shifting rental income into lower-tax family members’ hands can significantly cut the Section 24 hit—if done correctly.

Spouses / Civil Partners

• Transfers between spouses/civil partners usually are no gain/no loss for CGT.

• Use tenants-in-common and a deed of trust so income splits match beneficial ownership (Form 17, where appropriate).

• Aim to utilise two personal allowances, two basic-rate bands, and the partner with a lower marginal rate.

Adult Children

• Gifting shares of property (or shares in a property company) to adult children can help spread income, but be mindful of CGT/SDLT on transfers and lender consent where a mortgage exists.

• Beware settlements legislation for minor children: if a parent gifts and the child’s income is>£100 p.a., it can be taxed back on the parent.

Practical frictions to plan for

• SDLT on transfers subject to mortgage (debt counts as consideration).

• CGT on transfers at market value (unless spouse/civil partner).

• Lender consents and potential product/interest-rate changes.

• Keep minutes/deeds and update HMRC declarations to match actual beneficial ownership.

When to use a company instead: For larger portfolios, a property investment company with alphabet shares can direct dividends to lower-rate shareholders more flexibly—see Section 3.1 and Business Tax Planning London.

For intergenerational control and protection, combine ownership changes with Trust Advisory (e.g., discretionary trusts and Family Investment Companies).

5.4 Capital Allowances & Expenses

The goal is to maximise allowable deductions while avoiding common mistakes about what qualifies.

A) Know what you can (and can’t) claim on residential lets

• Mortgage interest: no deduction; 20% tax credit only (Section 24).

• Repairs and maintenance (revenue, not improvements).

• Insurance (buildings, landlord liability, rent-guarantee).

• Letting/management/tenancy set-up fees.

• Service charges & ground rent (if you, not the tenant, bear them).

• Accountancy fees for the property business.

• You pay utilities and council tax during the void period.

• Replacement of Domestic Items Relief (RDIR)—for like-for-like replacement of furniture/appliances (not initial purchase, not improvements).

• Travel costs wholly & exclusively for the property business (be careful—no commuting; keep mileage logs/receipts).

• Pre-letting expenses incurred up to 7 years before the first let can be allowable if they would have been deductible when letting commenced (e.g., advertising, minor repairs).

Not usually claimable on standard residential BTL:

• Capital allowances on fixtures/fittings in a dwelling-house (these typically don’t qualify).

• Improvements (capital). These are added to the CGT base cost instead.

B) Where capital allowances can apply

• Furnished Holiday Lets (FHLs) meeting the qualifying occupancy rules can claim capital allowances on furniture/equipment.

• Commercial or mixed-use property (e.g., shops with flats above—allowances may apply to the commercial element).

• Property companies owning non-dwelling assets (plant & machinery) may claim under standard rules.

C) Repairs vs Improvements (the classic trap)

• Repair = restoring original condition (deductible).

• Improvement = upgrading/adding new features (capital; no income deduction; added to base cost for CGT).
  Keep invoices descriptive (e.g., “like-for-like boiler replacement”) and separate projects where possible.

D) Accounting basis & records

• Choose the cash or accrual basis thoughtfully (default rules may apply—opt out if accruals gives a more accurate picture).

• Keep robust records: bank feeds, digital receipts, mileage logs, void-period utilities, and apportionments for costs serving multiple purposes.

Section 6: Why High-Net-Worth Landlords Need Specialist Advice

For high-net-worth individuals and professional landlords, property is rarely just about rental yield — it’s about long-term wealth preservation, tax efficiency, and legacy planning.

The challenge? Buy-to-let investors face multiple layers of taxation:

• Income Tax on rental profits (tightened by Section 24).

• Capital Gains Tax (CGT) on property disposals.

• Inheritance Tax (IHT) on passing wealth to future generations.

Without a coordinated plan, tax leakage across these areas can erode millions in value over a lifetime.

The Coordinated Approach

At CIGMA Accounting Ltd, we specialise in delivering multi-dimensional strategies for landlords, founders, and HNWI families:

• Buy-to-let mortgage structuring – reviewing incorporation and finance options.

• Business tax planning – integrating rental income with company structures for efficiency.

• Trust advisory London – protecting assets, ensuring discretion, and securing succession.

• Inheritance tax planning UK – aligning property portfolios with pension and estate strategies.

This joined-up approach not only maximises after-tax returns but also safeguards wealth across generations.