Most Section 24 guides run the calculation on one property. That is a useful starting point, but it misses the more important question for landlords who own three or more: what does the restriction cost when you stack six properties together?
The answer is worse than most landlords expect. Section 24 does not scale linearly. Each property added to the portfolio increases the phantom income figure that HM Revenue and Customs sees, pushing the landlord into higher tax bands earlier than the real numbers would justify, and in some cases into the personal allowance taper zone. The total cost across six properties is not six times the cost on one. It is higher.
This guide works through the numbers on a realistic six-property portfolio, property by property, to show exactly where the extra tax comes from, at which point each tax band is crossed, and what the cumulative bill looks like.
1. Why the Portfolio View Matters
Section 24 of the Finance (No. 2) Act 2015 restricts the tax relief individual landlords receive on mortgage interest. Instead of deducting interest from rental income before calculating profit, landlords now pay income tax on the full rental income and receive a flat 20% tax credit on their finance costs.
For a single property, this is straightforward to model. For a portfolio, the interaction between multiple properties and the landlord’s other income creates effects that no single-property calculation captures.
Three specific effects compound as portfolio size grows.
The tax band crossing point shifts earlier. Under the old rules, a landlord with employment income and modest rental profits might stay in the basic-rate band for the first two or three properties. Section 24 inflates the taxable income figure, so the higher-rate crossing happens at a lower real profit, and sooner in the portfolio build.
The personal allowance taper becomes reachable. For a landlord with £38,000 of employment income, a six-property portfolio under the old rules produces a total income of around £71,000. Under Section 24, the same economic position produces a reported income above £117,000, reaching the personal allowance taper zone. The landlord loses part of their personal allowance, paying tax on income the old rules would never have taxed at all.
The effective tax rate on real cash profit can exceed 100%. On individual properties with a high loan-to-value ratio, the real net cash profit after mortgage payments and expenses can be thin. Section 24’s phantom income calculation means some landlords pay more tax than they earn in real profit on those properties.
2. The Six-Property Portfolio: Assumptions
The following example uses a landlord named Sarah. She holds six residential properties in her own name, works full-time on a salary of £38,000, and is a higher-rate taxpayer once her rental income is included. All figures are illustrative and rounded for clarity.
| Property | Annual Rent | Mortgage Interest | Other Expenses | Old-Rules Profit | S24 Gross Profit |
| P1 | £13,200 | £6,000 | £1,320 | £5,880 | £11,880 |
| P2 | £15,000 | £7,500 | £1,500 | £6,000 | £13,500 |
| P3 | £14,400 | £8,000 | £1,440 | £4,960 | £12,960 |
| P4 | £13,200 | £7,000 | £1,320 | £4,880 | £11,880 |
| P5 | £16,800 | £9,000 | £1,680 | £6,120 | £15,120 |
| P6 | £15,600 | £9,000 | £1,560 | £5,040 | £14,040 |
| Total | £88,200 | £46,500 | £8,820 | £32,880 | £79,380 |
The 20% credit on £46,500 of mortgage interest is £9,300. That credit does not change. What changes is the income figure on which tax is calculated before the credit is applied.
Under the old rules, HM Revenue and Customs sees Sarah’s total rental profit as £32,880. Under Section 24, it sees £79,380. That is a difference of £46,500, exactly matching the mortgage interest that can no longer be deducted. The credit of £9,300 partially offsets this, but the net tax position is considerably worse.
3. The Stacking Effect: When Each Tax Band Is Crossed
This is where the portfolio picture diverges sharply from the single-property picture. The table below shows Sarah’s total reported income under both regimes as each property is added to the portfolio.
Sarah’s salary: £38,000. Higher-rate threshold: £50,270. Personal allowance taper starts: £100,000.
| After Adding | Old-Rules Total | Tax Band | S24 Total | Tax Band |
| P1 | £43,880 | Basic rate | £49,880 | Basic rate |
| P2 | £49,880 | Basic rate | £63,380 | Higher rate |
| P3 | £54,840 | Higher rate | £76,340 | Higher rate |
| P4 | £59,720 | Higher rate | £88,220 | Higher rate |
| P5 | £65,840 | Higher rate | £103,340 | Taper zone |
| P6 | £70,880 | Higher rate | £117,380 | Taper zone |
Under the old rules, Sarah crosses into the higher-rate band when property 3 is added. Under Section 24, she crosses at property 2, a full property earlier. By property 5, her reported income has passed £100,000 and she enters the personal allowance taper zone. Under the old rules, her total income never reaches £100,000. The taper is purely a Section 24 phenomenon for this portfolio.
The practical meaning: Sarah is paying 40% tax on phantom income that exists only because mortgage interest can no longer be deducted. And from property 5 onwards, she is also losing her personal allowance.
4. Full Tax Calculation: Old Rules Against Section 24
Under the old rules:
Total income: £70,880 (£38,000 salary plus £32,880 rental profit) Personal allowance: £12,570 (no taper; income is below £100,000) Basic-rate tax (£12,571 to £50,270): £37,700 at 20% = £7,540 Higher-rate tax (£50,271 to £70,880): £20,610 at 40% = £8,244 Total income tax: £15,784 Less PAYE already paid on salary (£38,000): £5,086 Additional tax owed via self-assessment on property income: £10,698
Under Section 24:
Total income (HMRC view): £117,380 (£38,000 salary plus £79,380 S24 gross profit) Personal allowance taper applies: income exceeds £100,000 by £17,380, so £8,690 of personal allowance is lost Effective personal allowance: £3,880 Tax on £117,380 with effective £3,880 allowance: Basic-rate tax (£3,881 to £50,270): £46,389 at 20% = £9,278 Higher-rate tax (£50,271 to £117,380): £67,109 at 40% = £26,844 Total income tax before credit: £36,122 Less 20% credit on £46,500 of finance costs: £9,300 Net income tax: £26,822 Less PAYE already paid on salary: £5,086 Additional tax owed via self-assessment on property income: £21,736
Section 24 extra annual cost: £11,038
The same six properties. The same rent. The same mortgages. The same real-world cash position. Section 24 costs Sarah £11,038 more in income tax every year than the system it replaced.
5. The Personal Allowance Taper: A Hidden Cost in Larger Portfolios
The taper rarely features in Section 24 guides written for smaller portfolios. For a six-property landlord with other income, it is a significant additional cost that sits on top of the headline relief gap.
The personal allowance taper removes £1 of allowance for every £2 that adjusted net income exceeds £100,000. By £125,140, the entire allowance is gone. The effective marginal rate in the taper zone is 60%: 40% income tax plus an additional 20% lost on income that the allowance would otherwise have sheltered.
In Sarah’s case, Section 24 pushes her reported income to £117,380. Her effective personal allowance falls from £12,570 to £3,880. She pays income tax on an extra £8,690 that the old rules would never have taxed. At 40%, that adds £3,476 to her bill before the credit is applied.
Under the old rules, her total income is £70,880. She retains the full personal allowance. The taper is entirely a Section 24 effect for this portfolio size.
For landlords with more properties, or with higher salaries, the taper zone can extend further. At £125,140 of reported income, the personal allowance is exhausted. Above that level, additional-rate tax of 45% applies. A portfolio with higher gross rents or lower allowable expenses can reach that point without the landlord’s real economic position having changed at all.
6. What the Numbers Mean Per Property and Over Time
Per property:
£11,038 across six properties is £1,840 per property per year. That is not the total tax on each property. It is the extra tax, compared to the old rules, purely as a result of Section 24. On a property generating a net cash surplus of £3,000 to £5,000 per year after all costs including the mortgage, £1,840 is a meaningful reduction in the return.
For properties with higher loan-to-value ratios and lower yields, the picture can be worse. The Section 24 cost does not vary with profitability. It is driven by the size of the mortgage interest bill. A property with £10,000 of interest and £9,000 of rent, generating a small real surplus, produces the same credit gap as one with £10,000 of interest and £14,000 of rent. The less profitable property carries a proportionally heavier Section 24 burden.
Over time:
At £11,038 per year, the cumulative cost runs as follows.
| Time period | Extra tax paid vs old rules |
| 1 year | £11,038 |
| 3 years | £33,114 |
| 5 years | £55,190 |
| 10 years | £110,380 |
These figures do not account for rent increases, remortgaging, or any changes to the portfolio. They assume the position stays static. In practice, rents tend to rise, which increases the credit gap if interest stays the same. If interest rates also rise, the gap grows further.
7. Three Structural Responses for Portfolio Landlords in 2026
No single response is universally right. The correct path depends on the size of the portfolio, the amount of accumulated gain, the remaining hold period, and the landlord’s broader income position. These are the three responses most commonly under review for portfolio landlords.
Response 1: Incorporate into a limited company
A limited company is not subject to Section 24. It deducts mortgage interest in full as a business expense and pays corporation tax on net profit: 19% on profits up to £50,000 and 25% above £250,000. For a landlord paying 40% income tax on phantom profits under Section 24, the difference in ongoing tax cost can be substantial.
The barrier to incorporation is the transfer cost. HM Revenue and Customs treats the transfer of property from personal to corporate ownership as a sale at market value. This triggers Stamp Duty Land Tax, including the 5% additional dwellings surcharge in force from 31 October 2024, and potentially Capital Gains Tax on accumulated gains since purchase. For a six-property portfolio at current values, those transfer costs can reach tens of thousands of pounds before a single year of corporation tax saving is realised.
Incorporation Relief under Section 162 of the Taxation of Chargeable Gains Act 1992 may defer the Capital Gains Tax if the property activity constitutes a trade. This is a test that requires detailed professional assessment of the specific portfolio. It is not automatic, and from April 2026 it must be actively claimed.
For a portfolio landlord planning to hold for ten or more years, the annual Section 24 saving can outweigh the one-off transfer costs. For a landlord planning to sell within three to five years, the maths is less clear and requires individual modelling.
Response 2: Pay down the mortgage
The Section 24 cost is proportional to the total mortgage interest bill. Reducing the mortgage balance reduces the interest, which directly reduces the size of the phantom income problem.
For every £10,000 of mortgage interest eliminated, a higher-rate landlord saves £2,000 per year in Section 24 costs (the gap between 40% relief under the old rules and the 20% credit now). For an additional-rate taxpayer, the saving is £2,500 per year.
This approach requires surplus cash and reduces liquidity. It also ties up capital in property rather than allowing it to be deployed elsewhere. But it is structurally simple, requires no professional advisory process to implement, and produces a measurable, predictable reduction in the Section 24 cost.
For landlords whose portfolios are heavily leveraged and who are already well into the higher-rate band, targeted paydown of the highest-interest properties can shift the overall cost most quickly.
Response 3: Transfer beneficial interest to a lower-earning spouse or civil partner
If one partner pays tax at the basic rate and the other pays higher rate, restructuring property ownership to shift rental income toward the lower-rate taxpayer can reduce the overall Section 24 impact.
The process requires severing the joint tenancy to become tenants in common, agreeing and documenting the new ownership split, and filing Form 17 with HM Revenue and Customs within 60 days. The arrangement must reflect genuine legal and economic ownership. HM Revenue and Customs scrutinises these arrangements closely and any split that does not reflect the actual beneficial interest will not be accepted.
For a portfolio in which two or three properties can be transferred to a basic-rate spouse, the annual saving can be material. It does not remove the Section 24 restriction, but it reduces the rate at which the phantom income is taxed.
8. Making Tax Digital: What Changes from April 2026
Portfolio landlords with six properties are almost certainly caught by Making Tax Digital for Income Tax from 6 April 2026. The threshold is gross rental income over £50,000. Sarah’s portfolio generates £88,200 of gross rent, well above the threshold.
From 6 April 2026, Sarah must submit quarterly updates summarising income and expenses for each property, then file a final declaration by 31 January. All submissions must go through HM Revenue and Customs-recognised compatible software. A spreadsheet or paper records are no longer sufficient once the threshold is reached.
The subsequent thresholds drop to £30,000 gross income from April 2027 and £20,000 from April 2028, pulling in smaller portfolios. For the purposes of the threshold, gross income means total rent received before any expenses are deducted, not net profit.
Making Tax Digital does not change the Section 24 rules. But it changes how and when the calculations must be reported, and it means that landlords who have been managing their tax position loosely on an annual basis will need to adopt proper quarterly bookkeeping.
Frequently Asked Questions
Section 24 applies to all personally held residential properties in the UK. The restriction covers every property in the portfolio, not just the most recent acquisition or the most profitable one. The total mortgage interest across all properties is used to calculate the 20% credit.
Because income from all properties stacks together with the landlord’s other income. Each property added to the portfolio increases the reported income figure HM Revenue and Customs uses to calculate tax. This can push the landlord into higher tax bands earlier than the real profit would justify, and in larger portfolios can trigger the personal allowance taper. Neither effect appears in a single-property calculation.
The personal allowance taper removes £1 of personal allowance for every £2 that adjusted net income exceeds £100,000. By £125,140, the entire allowance is gone. Because Section 24 inflates the reported income figure, portfolio landlords whose real income would not reach £100,000 can be pushed above that threshold by the phantom income effect, losing part or all of their personal allowance.
The answer depends on the specific portfolio: the total mortgage interest, the level of accumulated gains, the remaining hold period, and the landlord’s other income. For some landlords, the transfer costs of incorporation exceed the Section 24 saving within any realistic hold period. For others, particularly those holding for ten or more years with significant mortgage interest, incorporation produces a better long-term outcome. This is not a decision that should be made without professional modelling.
Yes. Paying down the mortgage reduces the interest bill and therefore the size of the phantom income problem. Increasing pension contributions can reduce adjusted net income, which may bring the landlord back below key thresholds, including the higher-rate band and the personal allowance taper. Neither approach removes Section 24, but both reduce its impact without requiring a property restructure.
No. A limited company can deduct mortgage interest in full as a business expense before calculating its corporation tax liability. This is the primary reason many portfolio landlords have incorporated since Section 24 was phased in between 2017 and 2020.
The Section 24 cost rises proportionally. The credit is fixed at 20% of qualifying finance costs. If mortgage rates increase, so does the total interest bill, and so does the gap between 40% relief under the old rules and the 20% credit now. For a higher-rate landlord, every additional £1,000 of annual mortgage interest costs an extra £200 per year compared to the old regime.
No. Making Tax Digital changes how and when the information must be reported to HM Revenue and Customs. It does not change the underlying tax rules. The Section 24 calculation remains the same under quarterly digital reporting as it did under annual self-assessment.
Now. The restriction has been fully in force since April 2020. Every year without a strategy review is another year of the full cost. For landlords approaching the April 2027 Making Tax Digital threshold at £30,000 gross income, the practical window for structural changes such as incorporation is narrowing.
Published May 2026. Last reviewed May 2026. For information only and not tax advice. The worked example uses illustrative figures. Your actual position will depend on your total income, mortgage interest, property values, and individual tax circumstances. Verify current rates and thresholds at GOV.UK. Speak with a qualified accountant or tax adviser before making any structural decision.
