Section 24 was announced in the Summer Budget of 2015 and introduced on 6th April 2017. It is an amendment of UK Tax Law and its comparative newness is leaving tenants and landlords alike in the dark. However, its vast impact means that it’s imperative to understand the ins and outs of this regulation.
Section 24 means that the amount of income tax relief landlords receive for residential property finance costs will be restricted to the basic rate of tax. Consequently, you will no longer be able to claim mortgage interest, or any other property finance, as tax-deductible. Instead, by 2021, rental profit will be taxed with a maximum deduction for finance costs at the basic rate of 20%.
The perceived Government objective is to reduce the number of ‘accidental’ landlords operating in the market. By encouraging landlords to become professional property businesses, it is expected to benefit landlords and tenants alike by improving the stability and profitability of the sector.
If you have any kind of loan or mortgage, then this will concern you and your property. Furthermore, if you have interest in a buy-to-let property, landlords can also be affected by these changes. If these ventures are a large proportion of your costs, you will pay tax on both those costs and on your profits.
Landlords currently can offset 75% of their mortgage interest vs. rental income. The changes have been introduced in stages to eliminate the tax relief on mortgage interest payments in the following way:
Landlords can ensure that Section 24 does not affect their livelihood so strongly through changing the way in which their business is run and therefore taxed by also trimming expenses in other areas.
These changes could prove beneficial depending upon the condition of each landlord’s circumstances, these are:
Although the new regulations could appear worrisome at first glance, there are other options that can be considered to both minimise the loss you make as a landlord and steel your resources in other areas to ensure you are prepared for the changes in the coming months. If you require legal advice, Ackroyd Legal is at hand to provide the specialist guidance.
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