Section 24 Mortgage Interest Relief: How It Hits Northern Ireland Landlords

Section 24 is the reason why higher-rate taxpaying landlords in England have been selling up. It's the reason why so many of them have been looking at Northern Ireland as an alternative — because lower purchase prices and higher gross yields change the maths. But Section 24 applies to Northern Ireland too, and the interaction between Northern Ireland's yield profile and Section 24's restrictions is something every investor needs to understand before they structure their first acquisition.

What Section 24 Actually Does

Before Section 24 was introduced and phased in from 2017 to 2020, individual landlords could deduct mortgage interest from rental income before calculating their taxable profit. If you earned £15,000 in rent and paid £5,000 in mortgage interest, you were taxed on £10,000 of profit. Simple.

Section 24 of the Finance Act 2015 eliminated that. Since April 2020, individual landlords:

• Cannot deduct mortgage interest from rental income at all
• Instead receive a 20% tax credit on their total finance costs

For a basic-rate (20%) taxpayer, this is broadly neutral — the 20% credit replaces the 20% deduction they'd have received. For higher-rate (40%) and additional-rate (45%) taxpayers, it's a significant and permanent increase in effective tax rate.

The Real Impact: A Worked Example

Consider a Northern Ireland property generating £15,000 in gross annual rent, with £2,000 in allowable expenses (letting agent fees, insurance, maintenance) and £5,000 in annual mortgage interest. The investor is a higher-rate (40%) taxpayer.

Under the old regime (pre-Section 24):

• Gross rent: £15,000
• Less expenses: −£2,000
• Less mortgage interest: −£5,000
• Taxable profit: £8,000
• Tax at 40%: £3,200
• Effective rate on cash profit (£8,000): 40%

Under Section 24 (current):

• Gross rent: £15,000
• Less expenses only: −£2,000
• Taxable profit: £13,000
• Tax at 40%: £5,200
• Less 20% credit on £5,000 finance costs: −£1,000
• Tax due: £4,200
• Effective rate on cash profit (£8,000): 52.5%

The landlord's actual cash flow hasn't changed — they still receive £8,000 after rent, expenses, and mortgage. But their tax bill has increased by £1,000 per year (a 31% increase), and their effective tax rate on real profit has jumped to 52.5%.

There's a further complication. Because HMRC calculates your "income" as the gross rental income (£13,000 on paper, before the finance cost credit) rather than actual net profit, this paper income can push a basic-rate taxpayer into the higher-rate bracket — triggering not just the increased property tax, but also higher-rate tax on their employment or other income. The tail consequences of Section 24 can extend well beyond the property itself.

Why This Matters More in Northern Ireland

Northern Ireland's higher gross yields mean larger absolute rental income figures, which means larger taxable totals under Section 24. An English investor who has found a £4% gross yield property in Manchester may find the Section 24 impact barely moves the needle. The same investor buying an 8% gross yield Belfast apartment — with significantly higher rental income relative to purchase price — will find Section 24 creates a much larger absolute tax distortion.

The good news: lower Northern Ireland property prices typically mean lower absolute mortgage debt (and therefore lower mortgage interest payments) relative to English equivalents. A £180,000 Belfast apartment with a 75% LTV mortgage generates less interest exposure than a £350,000 English property with the same LTV. The Section 24 impact still applies, but the capital efficiency of Northern Ireland's market provides some natural cushion.

The Limited Company (SPV) Solution

The standard professional advice for higher-rate taxpaying investors deploying mortgage finance is to purchase through a limited company Special Purpose Vehicle (SPV). Here's why:

Within a limited company, mortgage interest is a business expense. It is fully deductible from rental income before calculating corporation tax liability. Section 24 does not apply to companies. There is no restriction, no 20% credit — just a full deduction.

The tax comparison:

Within an SPV, that same £8,000 cash profit faces corporation tax of £1,520 at the 19% rate applicable to small companies. The landlord then decides when and how to extract funds — via salary or dividends — triggering personal tax at that point, but with much greater flexibility over timing.

The SPV disadvantages are real:

• Corporate buy-to-let mortgages carry a rate premium of 0.5%–1.0% above personal rates, narrowing the advantage
• Annual accounting costs run £800–£1,500 more than simple self-assessment
• There is no Capital Gains Tax annual exempt amount for companies on disposal
• If you have personally held properties already, transferring them into a company triggers SDLT and potentially CGT — which can be prohibitive

The SPV advantage is clearest when:

• You are a higher-rate or additional-rate taxpayer
• You are using significant mortgage finance (the higher the leverage, the bigger the Section 24 distortion)
• You are building a multi-property portfolio (retained profits within the company can be reinvested without triggering personal tax)
• You are setting up before your first acquisition (no existing portfolio to transfer, no CGT or SDLT exposure on transfer)

Allowable Deductions That Still Apply

Even under Section 24, standard operating expenses remain fully deductible — it's only finance costs that are restricted. Allowable deductions for Northern Ireland landlords include:

• Letting agent fees and tenant-finding costs
• Accountancy fees
• Service charges and ground rents
• Repairs and maintenance (not capital improvements)
• Landlord insurance
• Council rates where paid by the landlord (relevant for properties valued at £150,000 or less, where the landlord is liable for domestic rates)

This distinction between repairs (deductible) and capital improvements (not deductible for income tax, but may reduce your CGT bill on disposal) catches many landlords out. Replacing a broken boiler: deductible. Installing a new extension: not deductible from income.

The ROI Investor Angle

Republic of Ireland-resident investors buying in Northern Ireland have a different Section 24 exposure. If they're operating as individuals in the UK, Section 24 applies to their UK rental income in the same way it does for UK residents. However, they may have different tax treaty positions that are worth examining with a professional who understands both UK and Irish tax.

More significantly for ROI investors: the UK-Ireland Double Taxation Treaty under Article 14(1) means that on disposal, an ROI-resident investor selling Northern Irish residential property owes no CGT to HMRC — the CGT liability falls solely in the Republic of Ireland, under Irish rates. This is a meaningful exit advantage that partially offsets any Section 24 friction during the holding period.

Bottom Line

Section 24 is not a reason to avoid Northern Ireland investment — it's a reason to structure it correctly from the start. For basic-rate taxpayers with modest leverage, the impact is manageable. For higher-rate taxpayers with significant mortgage finance, the SPV route is increasingly the rational default.

The Northern Ireland Property Investment Guide covers Section 24, SPV structuring, and the interaction with Northern Ireland's domestic rates liability in the context of actual Northern Irish yield figures — so you can model your own position rather than relying on generic UK-wide advice.

The mistake is discovering the Section 24 impact in year two when the tax return arrives. Run the numbers before you buy.

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