Section 24 and Garages: Why You're Not Affected — And What Actually Hurts Your Tax Bill

A common misconception we hear from new garage investors who come from buy-to-let: "Won't Section 24 hammer my garage profits the way it hammered my flats?"

The short answer is no. Section 24 does not apply to garages in the way it applies to residential buy-to-let, and for most garage investors it never will. But the misconception is worth unpicking, because it leads people to over-prioritise the wrong tax issues.

What Section 24 actually does

Section 24 of the Finance (No. 2) Act 2015 restricted the deduction of mortgage interest against rental profits for individual landlords of residential property. Pre-Section 24, a landlord could deduct full mortgage interest before calculating taxable profit. Post-Section 24, individual landlords can claim only a 20% basic-rate tax credit on mortgage interest, regardless of their actual marginal rate.

The consequence is that higher-rate landlords (40%+ taxpayers) effectively pay tax on revenue rather than profit on the mortgage-interest portion of their costs. For leveraged residential portfolios, this turned previously-profitable holdings into loss-making ones overnight.

Why garages mostly escape

Three reasons the worst of Section 24 does not apply to garage investors.

Garages are rarely mortgaged. Almost all UK garage purchases are cash purchases. There is no mortgage interest to disallow, because there is no mortgage interest. Section 24 bite is on the disallowance of interest, and zero interest disallowed at any rate is zero.

Limited company holdings are exempt anyway. Section 24 applies only to individual landlords. A garage held in a Ltd company can still deduct the full interest cost (if any) before computing corporation tax. Garages held in companies for any reason — and many investors do this for tax efficiency — are outside Section 24 scope entirely.

Even individual garage landlords with mortgages are typically borrowing on their main home. Garage purchases sometimes use a re-mortgage on a main residence to free up cash. Interest on that re-mortgage is not restricted by Section 24 either, because the underlying borrowing is not on a residential investment property.

What actually hurts garage investors' tax bills

The tax issues that do matter, in rough order of severity.

Marginal rate income tax on net rental profits. A £10,000 net rental profit added to a higher-rate income flow is taxed at 40% — that is £4,000 of tax. If you are in additional rate (45%), it is £4,500. This is the single biggest tax cost on a personal garage portfolio, and it is why scaling a portfolio personally past 5-8 garages typically signals time to incorporate.

The £1,000 property allowance is small. You get £1,000/year of property income tax-free under the property allowance — useful for one or two small lettings, but quickly outgrown. After £1,000 of gross rent, every pound counts.

Personal allowance taper above £100,000. If garage rental profit pushes your total income over £100,000, you start losing personal allowance at £1 lost per £2 of additional income. This is effectively a 60% marginal tax band between £100,000 and £125,140, and it bites garage investors with high day jobs and growing portfolios.

Capital gains tax on disposal. When you eventually sell a garage, the gain is taxable at 24% (for higher-rate taxpayers, on residential property) or 20% (the standard rate on non-residential). The annual CGT exempt amount is £3,000 in 2026/27 — small. Building up a portfolio with embedded gains creates a substantial deferred tax liability that crystallises on disposal.

Inheritance tax exposure. Garage portfolios held personally count as residential investment property for IHT purposes — ineligible for business property relief, fully chargeable on death above the nil-rate band. A £300,000 portfolio passing on death attracts £120,000 of IHT before any planning.

The structural choices that move the needle

Three decisions that have a much bigger effect on your tax bill than Section 24 ever could.

Personal vs Limited Company. The Personal vs Limited Company calculator runs the comparison for your specific income level. The headline: corporation tax on the same profit is 19-25%, versus personal income tax at 20-45% on the marginal portion. For higher-rate taxpayers reinvesting into more garages, the company is usually 5-15% more tax-efficient.

Spousal income splitting. If your spouse is in a lower tax band, holding garages jointly (or in their name) can save 15-20 percentage points of tax on the rental income. Specific advice is essential — spousal transfers have CGT and stamp duty considerations.

Pension contributions to extract income. A garage Ltd company can contribute up to £60,000/year (2026/27 annual allowance) to a director pension as a deductible business expense, with no immediate income tax. For investors building toward retirement, this is the single most powerful tax-efficiency tool.

What we'd do

For a starting garage investor with one or two units and modest rental profit (under £5,000/year), keep it personal — the admin overhead of a Ltd company outweighs the tax saving.

For a growing portfolio (3-10 garages, £5,000-25,000/year of rental profit) where the investor is already in the higher-rate band, incorporate. The tax efficiency from year three onwards more than pays for the extra £600-1,200/year of accountancy.

For a mature portfolio (10+ garages, £25,000+/year), think structurally. Spousal splitting, pension contributions, possibly a holding company, possibly a family investment company. At this scale, a property-savvy accountant pays for themselves several times over.

Section 24 is a buy-to-let problem, not a garage-investing problem. The garage-investing tax problems are real, but they are different — and the structural answers are more powerful than the BTL world allows.

This article reflects 2026/27 UK tax rules and is general guidance only. Specific situations require specific tax advice from a qualified accountant.