You happen to be a landlord who owns a property for rent and there has been confusion about section 24 which is you are wondering and seeking to get your queries cleared. This is also known as Tenant Tax. In order to keep you updated, this article will help to explain everything you need to know about section 24 as a landlord. Before we get indulged in further discussion, let’s have a look at what we have covered here:
- A Basic Understanding of Section 24
- Impacts of Section 24
- Learn to Manage with us
- The Bottom Line
A Basic Understanding of Section 24
The announcement of section 24 was made in the Summer budget of 2015 and the finally introduced in April of the year 2017. This came up with a few amendments in the UK law. The salient features of the law are listed and explained below:
- The landlords are no more rightful to deduct the mortgage interest.
- The landlords can’t deduct the mortgage agreement fees and alike finance costs from the income they get from tenants or before the tax liability is calculated.
- 20% tax credit based on mortgage interest and loan can be claimed by the landlords.
To keep the landlords within a higher tax bracket was a big matter due to which section 24 is known as a huge change. Some of the landlords who have significant commitments of mortgages will have to pay more tax for fewer profits. This can result in pushing them into the red.
Moreover, section 24 applies to the following:
- Landlords that are non-UK residents but have some rental properties in the UK.
- UK resident landlords who are letting their properties.
- The kind of trust and partnership that let residential properties.
Impacts of Section 24
All the landlords who incur finance costs are certainly get affected by section 24. Most of our landlords are accidental who are running their property business on their own, as part of a partnership or with a property trust.
Moreover, the landlords who happen to be non-UK residents are affected equally.
There is a category of the landlords that is least affected and they operate their rental business by the company regardless of whether they are residing within the UK or outside.
The type o landlords who own a property like holiday lets are also not affected by the changes in section 24 as yet.
As mentioned above that the prominent finance cost is a mortgage that landlords can’t claim, however, there are some more costs that can’t be claimed. They are listed below for you:
- Penalties that are associated due to the settlement of early mortgage.
- The arrangement fees for mortgage
- The interest is to pay on the loans taken due to the renovation or furnishing of the property.
Can’t find what you are looking for? Why not speak to one of our experts and see how we can help you are looking for.
Learn to Manage with us
By now you must be wondering about the ways that can negate the effects of section 24. There can be multiple solutions to this like making amendments in the business is carried out, cutting off some of the expenses in other areas. However, this totally depends on the personal circumstances of a landlord. This includes the following:
- Find ways to cheaper finance in order to cut your finance cost.
- Properties that are commercial are not affected by section 24, switching to the commercial rental property can also help to negate the effects.
- By smart changing of profits division with a partner, the effects can be reduced. For instance, you can share the profits in a partnership with your partner who is in a low tax bracket.
- Another smart way is to get your properties transferred to your civil partner or spouse who has a lower income.
- If you can move your portfolio into a limited company, you can possibly remove the effects because limited companies are exempted from this effect.
- Selling the property could also be a doable idea for accidental landlords or there might be other business reasons to quit. This idea isn’t appreciated by many.
The Bottom Line
By now you must have developed a good understanding of section 24 and how it works as well as the effects of the new amendments on the landlords. We can wind up the discussion by saying that to remove the effects or reduce them, be careful and manage the process professionally in order to ensure that you do not struggle with problems further.
Whether you are associated with the business world or plan to do so, our professionals can offer you the best advice to take your business to next level. Reach out to us now to make your dream come true.
Disclaimer: The information provided in this article including text, graphics, and images is general in nature and does not intend to disregard any professional advice.