Section 24 has fundamentally changed the tax landscape for UK landlords since its full implementation in 2020/21. The restriction on mortgage interest relief pushes many landlords into higher tax brackets, while incorporation offers a potential escape route.

But which strategy actually saves more tax? The answer depends on your rental income, mortgage levels, and personal circumstances.

Understanding Section 24's Impact

Section 24 restricts mortgage interest relief to 20% for individual landlords. Previously, you could deduct full mortgage interest from rental income before calculating tax. Now, you pay tax on gross rental income and receive a 20% tax credit.

For a higher-rate taxpayer, this creates an effective tax rate of 32% on mortgage interest (40% tax minus 20% credit). Additional-rate taxpayers face 45% tax with only 20% relief.

Example: A landlord with £50,000 rental income and £30,000 mortgage interest:

  • Pre-Section 24: Tax on £20,000 profit at 40% = £8,000
  • Post-Section 24: Tax on £50,000 at 40% minus £6,000 credit = £14,000
  • Additional tax burden: £6,000 annually

How Incorporation Changes the Game

Property companies aren't subject to Section 24. They can still deduct full mortgage interest against rental income, paying corporation tax only on actual profits.

However, incorporation isn't free. You'll face costs for setup, ongoing compliance, and potential capital gains tax on transfer. There's also corporation tax at 19-25% plus additional tax when extracting profits.

Key incorporation benefits:

  • Full mortgage interest relief restored
  • Lower corporation tax rates on retained profits
  • More flexible profit extraction strategies
  • Easier succession planning

Real-World Comparison: £100,000 Portfolio

Let's compare a landlord with £100,000 annual rental income, £60,000 mortgage interest, and £10,000 other expenses. Assume they're a 40% taxpayer with £50,000 other income.

Individual Ownership (Section 24)

Taxable rental income: £100,000 - £10,000 = £90,000
Tax at 40%: £36,000
Less 20% mortgage interest credit: £12,000
Net tax: £24,000
After-tax profit: £30,000 - £24,000 = £6,000

Company Ownership

Company profit: £100,000 - £60,000 - £10,000 = £30,000
Corporation tax at 25%: £7,500
Available for distribution: £22,500

If extracted as dividend:
Dividend tax at 33.75%: £7,594
Net after-tax: £14,906

Incorporation advantage: £8,906 annually (£14,906 vs £6,000)

When Section 24 Might Be Preferable

Section 24 vs incorporation isn't always clear-cut. Individual ownership might be better when:

  • Low mortgage levels reduce Section 24's impact
  • You're a basic-rate taxpayer with no other income
  • Portfolio value is modest (under £500,000)
  • You plan to sell properties soon (avoiding CGT on incorporation)

A landlord with £30,000 rental income, £10,000 mortgage interest, and basic-rate tax status faces minimal Section 24 impact. Incorporation costs might outweigh benefits.

Incorporation Considerations Beyond Tax

Tax savings drive most incorporation decisions, but consider these factors:

Setup and ongoing costs: Legal fees, accountancy, and annual compliance typically cost £3,000-£5,000 initially, plus £2,000-£3,000 annually.

Capital gains on transfer: Moving properties into a company usually triggers CGT. Holdover relief might apply, but specialist advice is essential.

Mortgage restrictions: Buy-to-let mortgages for companies often have higher rates and smaller loan-to-value ratios.

Personal guarantees: Lenders typically require directors to guarantee company mortgages, reducing limited liability benefits.

Timing Your Decision

With Making Tax Digital for Income Tax Property starting 6 April 2026, now is an ideal time to review your structure. The additional compliance burden might tip the balance toward incorporation for larger portfolios.

Consider incorporating before acquiring new properties rather than transferring existing ones. This avoids immediate CGT while securing future tax benefits.

Making the Right Choice

Section 24 vs incorporation depends on your specific circumstances. Generally, incorporation becomes more attractive as:

  • Rental income increases
  • Mortgage interest levels rise
  • Your marginal tax rate increases
  • Portfolio size grows

The tipping point often occurs around £75,000-£100,000 annual rental income for higher-rate taxpayers with significant mortgage interest.

However, tax isn't everything. Consider your long-term plans, risk tolerance, and administrative preferences. Some landlords prefer the simplicity of individual ownership despite higher tax costs.

Before making any decision, model your specific situation using our property tax calculators or speak to a specialist who can analyze your complete financial picture.