How Section 24 Changed Short-Let Economics for UK Landlords

If you bought a UK rental property before 2015, your accountant probably delivered some bad news over the last few years. That news has a name: Section 24 of the Finance (No. 2) Act 2015. This is the plain-English version of what it did, why it pushed a large slice of the UK's landlords into short-let and serviced accommodation, and what to plan for next.

What Section 24 actually changed

Before Section 24, individual landlords deducted mortgage interest from rental income before calculating tax. Higher-rate landlords received 40% relief. After the phase-in completed in 2020, landlords with a personally-held buy-to-let can no longer deduct mortgage interest as a cost. Instead they receive a flat 20% tax credit.

In practice that means:

• Basic-rate taxpayers: broadly unaffected.
• Higher-rate taxpayers: an effective tax hike on rental income.
• Landlords near the higher-rate threshold: many were pushed over it because their gross rent, not their net profit, now counts against the threshold.

Why short-let and furnished holiday letting became the escape route

Furnished Holiday Lettings (FHL) status was, until April 2025, treated as a trade for tax purposes. That meant:

• Full mortgage interest deductibility (Section 24 did not apply).
• Capital allowances on furniture, fittings and integral features.
• Rollover relief and Business Asset Disposal Relief on sale.
• Pension-contributable earnings.

A lot of landlords - especially in Birmingham, Manchester and the Cotswolds - moved AST tenancies over to serviced accommodation for exactly this reason. That is a big part of the growth we saw between 2018 and 2024. See Why offer Serviced Accommodation in Birmingham for the original playbook.

What changed on 6 April 2025

The FHL regime was abolished. From tax year 2025/26 onward, furnished holiday lettings are treated the same way as any other property business:

• Section 24 restriction applies to mortgage interest.
• Capital allowances no longer available on new expenditure.
• FHL-specific CGT reliefs no longer available.

So has the arbitrage disappeared? Not quite - the tax positioning has narrowed, but the raw revenue advantage of short-let over AST has not.

The 2026 landlord playbook

What we tell owners this year:

1. Compare gross short-let revenue vs AST rent on your specific property - the gap in Birmingham, Manchester, Liverpool and the Cotswolds is still typically 40-90%. See Guaranteed Rent vs Short-Let: Which Pays More in 2026?.
2. Check whether a limited company structure is worth it. Post-FHL, incorporation is back on the table for many higher-rate landlords - talk to a specialist accountant, not a general one.
3. Do not confuse Section 24 with Renters' Rights. They are different. The upcoming Renters' Rights Bill affects ASTs, not short lets - a separate conversation.
4. Get a personalised forecast. The maths only makes sense on your postcode, your loan-to-value and your marginal rate. We build these routinely - request a proposal.

What we still do not know

HMRC has signalled it wants a clearer national registration scheme for short-lets in England, and business rates thresholds for short-lets have shifted twice since 2023. We are keeping the Guaranteed Rent option on the table for owners who want to sidestep the operational and tax complexity altogether.

Bottom line: Section 24 killed the "leverage a portfolio, deduct all the interest" model. Short-let is no longer a tax shelter, but it is still, in most UK cities, materially more profitable per property. The maths just needs redoing every year.