Gary works in IT and earns £60,000. Over fifteen years he bought three flats, each with an interest-only buy-to-let mortgage. The rent comes to £36,000 a year.
What happened
When his fixed rates ended, Gary's mortgage interest rose to around £18,000 a year. With £6,000 of running costs, his real profit was about £12,000.
But under Section 24 he's taxed on £30,000. As a higher-rate taxpayer, his tax bill on the flats came to around £8,400, leaving him about £3,600 for a year of being a landlord. From April 2027, with the property higher rate at 44%, it gets worse.
The fallout
- Gary had been budgeting on his real profit, not his taxable profit, and was caught out by his tax bill.
- He considered selling, then realised he'd face capital gains tax too.
- He wondered about a limited company, but didn't know what it would cost to move.
What could have been different
Gary's situation isn't unusual. With advice earlier, he could have looked at how the flats were owned and financed, and planned his options before the rates and the tax rules changed around him.
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