Since its introduction in 2017, Section 24 of the Finance (No.2) Act 2015 has fundamentally changed how landlords are taxed on their rental income. Once able to deduct full mortgage interest costs from their rental profits, landlords are now only able to claim a basic rate tax credit (20%), a change that many argue has turned a once-profitable venture into a financial strain.

A Shrinking Private Rented Sector

Recent research from Propertymark (August 2024) shows that the Private Rented Sector (PRS) is under significant pressure. With 57% of English landlords using Buy-to-Let (BTL) mortgages, the combination of rising interest rates, soaring costs, and Section 24 tax changes has hit hard.

The study revealed that:

• 69% of landlords have seen their monthly mortgage payments rise, with some increases exceeding £500 per month.
• Many landlords report earning little to no profit, and in some cases, operating at a loss.
• Almost one in five landlords are now considering selling some or all of their portfolio, contributing to a shrinking PRS and higher rents across the country.

“Taxed on Turnover, Not Profit”

One of the most common sentiments among landlords surveyed was a sense of unfairness. While other businesses are taxed on profits, landlords now find themselves taxed on gross rental income, even when their real profit has been eroded by rising mortgage costs.

As Propertymark summarised, the policy was intended to make the tax system “fairer” by reducing the advantage landlords previously held over homebuyers. Yet, in practice, it has pushed many landlords into higher tax brackets, reduced disposable income, and even eliminated child benefit eligibility for some.

Consequences for Tenants and the Market

The financial pressure on landlords has had a knock-on effect on tenants. Many have been forced to raise rents to offset increased tax and mortgage liabilities. The research highlights that average PRS rents began rising sharply from 2020 onwards, with landlords citing Section 24 as a contributing factor.

Even more concerning is the reduction in maintenance and improvement budgets. Landlords report cutting back on essential repairs and energy-efficiency upgrades simply because the cash flow is no longer there. Over time, these risks worsening housing quality across the sector.

Adapting to a Changing Landscape

Landlords have taken a range of steps to adapt:

• Incorporation – moving properties into limited company ownership to regain full mortgage interest relief (though this brings costs like stamp duty and capital gains implications).
• Portfolio downsizing – selling off underperforming properties to pay down debt.
• Rent increases – reluctantly raising rents to maintain viability.

Despite these efforts, Propertymark concludes that Section 24 has led to a clear reduction in rental supply, contributing to continued rent inflation and market instability.

How Boydens Can Help

At Boydens, we recognise the pressures landlords face, from complex tax legislation to rising costs and evolving compliance standards. Our specialist Taxation Department is here to help.

We can:

• Review your property accounts,
• Assess your exposure to Section 24, and
• Help collate your records for a clear understanding of your tax position and future options.

Whether you’re considering incorporation, restructuring your portfolio, or simply looking for a second opinion, our experts can guide you through the numbers and the nuances.

📞 Get in touch with our taxation team today to arrange a confidential review of your landlord accounts and ensure you’re making the most of your investment in a challenging market.