Why Higher Rate Taxpayers Should Never Buy in Their Personal Name

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Why Higher Rate Taxpayers Should Never Buy Property in Their Personal Name

A deep dive into how Section 24 works, what it actually costs you in real numbers, and why the Ltd company is the only logical answer for scaling investors

If you're a higher rate taxpayer and you're buying investment property in your personal name, you're fighting a battle that is almost impossible to win. Section 24 is the reason why. This article breaks down exactly what it is, what it costs you in real numbers, and why the limited company is the only logical answer for investors who are serious about scaling.

What Is Section 24?

Section 24 of the Finance Act 2015 changed the rules on how landlords buying in their personal name are taxed on rental income. Before it was introduced, landlords could deduct 100% of their mortgage interest as an allowable expense before calculating their tax bill. That made sense — it was a genuine cost of running a property business.

Section 24 removed that deduction. From its full implementation in 2021 onwards, personal name landlords can no longer offset their mortgage interest against their rental income. Instead, they are taxed on their gross rental income and then receive a basic rate tax credit of 20% on the mortgage interest. This sounds similar on paper. In practice, for higher rate taxpayers, it is significantly more damaging.

The Real Numbers: What Section 24 Actually Costs You

From April 2027, the Autumn 2025 Budget also introduced a 2 percentage point increase across all property income tax bands. Here is how that now looks:

Personal allowance (tax-free): up to £12,570
Basic Rate (property income): 22% from £12,570 to £50,270
Higher Rate (property income): 42% from £50,270 to £125,140
Additional Rate: 47% above £125,140

Now let's run through the numbers using a real example so you can see the impact clearly.
Assume the following for a single property:

Rent received: £1,000 per month
Mortgage interest: £500 per month
Real profit: £500 per month

Scenario 1 — Personal Name, Basic Rate Taxpayer

Under Section 24, HMRC taxes you on the full £1,000 of rental income, not on your real profit of £500.
Tax at 22% on £1,000 = £220
Less: 22% mortgage interest credit on £500 = £110
Tax to pay: £110
Net profit after tax: £390
In this scenario, Section 24 effectively works out as paying 22% on your real profit of £500. The credit cancels out most of the distortion. For a basic rate taxpayer, Section 24 is painful on paper but manageable in practice.

Scenario 2 — Personal Name, Higher Rate Taxpayer

Now watch what happens if your total income pushes you into the higher rate band. Remember: in the UK, your salary is always taxed first. Your property income sits on top. A pay rise at work can push your rental income into higher rate territory without any change to the property itself.
Tax at 42% on £1,000 = £420
Less: 22% mortgage interest credit on £500 = £110
Tax to pay: £310
Net profit after tax: £190
Your real profit was £500. Your net profit after tax is £190. That is a 62% tax take on money you actually earned. And the problem compounds as you add more properties.

Why the Limited Company
Solves This

Section 24 does not apply to limited companies. A company can still deduct 100% of its mortgage interest as a legitimate business expense before calculating its taxable profit. That is the critical difference.

Using the same example:

Rent: £1,000
Less mortgage interest (fully deductible): £500
Taxable profit: £500
Corporation tax at 19% (for profits under £50,000): £95
Net profit retained in company: £405

£405 inside the company versus £190 in your personal name as a higher rate taxpayer. That is more than double the retained profit from the same property. Across a portfolio of five, ten, or twenty properties, the difference becomes a serious amount of money.

A Common Question: Are Ltd Company Mortgage Rates Higher?

They used to be. Since the full implementation of Section 24 in 2021, the majority of buy-to-let purchases in the UK have been made through limited companies. More than 70% of new BTL purchases are now in a company structure. As a result, lenders have responded by bringing their limited company rates much closer to personal name rates. In many cases they are now comparable. The rate gap is no longer a valid reason to avoid the company structure.

When Does Personal
Name Still Work?

There are circumstances where buying in your personal name remains a reasonable choice:

You are a basic rate taxpayer and intend to buy only one or two properties
You are approaching retirement, your employment income is dropping to zero, and you want to use your personal allowance and the basic rate band efficiently
You want simplicity and have no plans to scale

The key point is that you are limited in how much you can buy in your personal name before your combined income pushes you into higher rate territory. If you have any ambition to build a portfolio, the limited company is the right structure from the beginning.

The Bottom Line

Section 24 was designed to make property investing in personal names less attractive for higher rate taxpayers. Combined with the April 2027 tax increases, it has achieved that. If you are a higher rate taxpayer — or if you expect to become one as your portfolio grows — buying in your personal name is not a viable long-term strategy. The limited company is not a loophole. It is the correct structure for serious property investors.

Key Takeaway

Section 24 taxes personal name landlords on gross rent, not real profit.

At the higher rate, this can leave you with less than 40p of every £1 earned.

Limited companies are exempt from Section 24 and pay 19% corporation tax on actual profit.

For any investor planning to scale, the limited company is the only logical structure.