section 24 private landlord

Section 24 – how will it affect Private Landlords?

In April 2016, the government introduced Section 24 of the Finance Act 2015 – it’s implementation to phase in gradually over four years.

Landlord News by Madalena Penny

section 24 landlordThis means that by 2020 all buy to let mortgages, overdrafts and loans will only receive 20% tax relief. For landlords who bought property during the private rented sector uprising that has taken place since the economic downturn – this could mean serious problems on rental yields, and higher income tax brackets.

If you were previously a landlord claiming the basic rate relief of 20%, there will be no change in what you can claim, and life will be pretty much the same. However, under Section 24 if you are a landlord or property investor in a higher tax bracket, things could become quite stressful. So basically, you will be paying more tax.

Considering the lack of affordable housing stock available and the reliance on the private rented sector to prop up the need for accommodation, it could mean that fewer landlords enter the market, exacerbating the housing crisis further.

If you are a landlord in the higher tax bracket, you can expect to be paying up-to 20% more tax on your rental income. If you rely on any benefits, such as tax credits, this too will be affected by the change.

Joseph Hetherington of Property Management and Auction Services Penny Joseph said:
“This legislation may well end up strangling further investment in the private rented sector. With the upcoming tenant fee bans due to be rolled in next year, many letting agents in the industry will be raising their landlord fees to compensate for the financial loss caused by the ban. With the lack of available housing and first-time house buyers unable to afford mortgages, imposing a higher tax bracket on landlords will be detrimental for tenants as rents will no-doubt need to be increased because of the legislation.”

Even landlords who own rental property abroad are not exempt from Section 24 tax changes, nor Trusts or landlords living abroad with property they are renting here in the UK.

Countermeasures to avoid paying higher taxes have resulted in many landlords now transferring their property to a limited company, where profits can be taxed at twenty percent. Unfortunately, this creates further problems with other business taxes, such as PAYE.

“We’ve come across a number of landlords who have been detrimentally affected by the Section 24 changes, “said Mr. Hetherington.  “We would advise that they seek the advice of a good tax accountant.”


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