Landlord | Tooting
The Section 24 Squeeze in Tooting: Why Profitable-Looking London Lets Produce Painful Tax Bills
Tooting's landlords live the Section 24 problem in its purest form: strong rents, but London-sized mortgages behind them. Since interest became a 20 per cent credit instead of a deductible cost, the gap between cash in the bank and taxable profit has widened into the single biggest shock on London landlord returns.
The arithmetic, honestly
Rent £24,000. Interest £14,000. Other costs £3,000. Cash profit: £7,000. But taxable profit is £21,000 (interest excluded), taxed in full, then a credit of 20 per cent of the interest comes off the bill. A higher-rate landlord pays roughly £8,400 tax minus £2,800 credit = £5,600, on £7,000 of cash. And because the £21,000 stacks on top of a salary, the same mechanism pushes people over thresholds they never expected: the 60 per cent zone above £100k, the child benefit charge, the loss of allowances.
The levers that actually work
- Claim everything else fully. With interest restricted, the remaining deductions matter more: repairs documented properly, replacement items, agent fees, insurance, mileage, use of home for management.
- Spousal ownership shares. Where one partner pays lower rates, adjusting beneficial ownership (with the right paperwork, including where mortgages are involved) moves profit to the cheaper band.
- The company question, run honestly. Companies deduct interest in full, which is exactly why leveraged London landlords consider incorporation; but transferring an existing let can trigger CGT and stamp duty, and extracting profits has its own tax. New purchases are the cleaner company candidates. Numbers, not slogans: see company versus personal name.
- Rate strategy at remortgage. Interest is your biggest line; the after-tax cost of each mortgage option belongs in the comparison, not just the headline rate.
The two-flat squeeze, eased
A Tooting couple with two leveraged flats, all income assessed on the higher-earning spouse, were paying child benefit charge on top of the Section 24 effect. Reworked ownership shares moved most rental profit to the basic-rate partner, full deduction capture cut the assessed profit, and the combined saving ran to £3,800 a year without selling or incorporating anything.
Local service: landlord accountant in Tooting.
Frequently Asked Questions
Is Section 24 really on all my interest?
On residential lets owned personally, yes: no interest deduction, just the 20 per cent credit. Companies and (historically) furnished holiday lets sat outside it.
My broker says remortgage costs are claimable. True?
Arrangement and broker fees for a let's mortgage are generally deductible revenue costs, spread where appropriate. Another reason the paperwork file pays.
Can we just put the flat 99/1 in my wife's name?
Married couples need the right declarations and, where mortgaged, lender consent; done properly the income follows beneficial ownership. Done casually it fails. It is a documented half-day of work, not a conversation.
Would selling one flat and clearing the other's mortgage help?
Often dramatically: less interest means less Section 24 distortion, and the CGT on the sale may be smaller than people fear after reliefs. We model both futures side by side.
Does the squeeze affect basic-rate landlords too?
Less brutally, but the assessed-profit inflation can itself push basic-rate taxpayers into higher rate, child benefit territory or past £100k. The cliff edges are the danger.
Are my losses from a bad year usable?
Property losses carry forward against future property profits automatically. The Section 24 credit also carries forward where unusable. Both need tracking on the returns.
Is incorporation ever wrong for big portfolios?
Frequently: CGT and SDLT on transfer, dividend taxes on extraction, and mortgage repricing can eat a decade of theoretical savings. It earns its keep mainly on new purchases and specific refinancing strategies.
What records make the biggest difference here?
Mortgage interest certificates each year, every repair invoice, and a clean income schedule. The squeeze punishes lazy returns hardest.
Feeling the Section 24 squeeze in SW17?
Free 15-minute call: your real numbers through the levers above, and an honest answer on what would actually help.
Or email info@yourtaxhelp.co.uk | Landlord accountant in Tooting
General guidance only. Not personal tax advice. Contact us for advice specific to your situation. Figures relate to the 2025/26 tax year unless otherwise stated.