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20/10/2017

Interview: What Section 24 Means for Buy-to-Let Landlords

Kristen Durose - Headshot
  • with Kristen Durose

    Kristen Durose is the managing director of Red Star Wealth Management, a company of independent financial advisers based in Blackpool, Lancashire. You can see her company website here.

Buy-to-let tax changes under the guise of Section 24 or the Tenant Tax are making some forms of property investment much less profitable. Today Amy and Kristen look at what Section 24 is, when it is being introduced, and at what buy-to-let landlords need to know to survive it.

Buy-To-Let Tax Changes

Amy: One of the biggest things that I'm sure our viewers are be hoping I'll ask you about is the buy-to-let tax changes. Everything is changing at the moment and it's confusing and complicated.

Kristen: Of course.

Amy: Could you simplify things for us?

Kristen: I'll try my best but to be clear, I am not an accountant. I can talk through some of the details but, on this subject, investors really need to be engaging with accountants.

Amy: Absolutely.

Kristen: So, if you are a property investor or landlord, and you haven't got one already, then getting an accountant is strongly advised.

The Tenant Tax

Kristen: The changes to tax on buy to let that have come in have been, to an extent, controversial. And I know that there is a whole campaign dedicated to axing the tenant tax.

Amy: The tenant tax. So, not the landlord tax, but the tenant tax.

Kristen: Yes, people call Section 24 the tenant tax but this shouldn't be confused with the Daily Mirror story from last year regarding a different tenant tax. So, not that, but Section 24.


  • To Read Another Financial Expert's Take On Section 24 Click Here

What Is Section 24?

Kristen: Section 24 means that landlords can now only claim basic rate tax relief on financing, which in most cases will mean a mortgage.

Before the changes, if you were a higher rate taxpayer, you could claim higher rate tax relief on mortgage interest payments. That has changed so that now you can only claim basic rate relief.

So, if previously, you were only claiming basic rate relief before, nothing has changed for you. But for most property investors who are in the higher rate tax bracket, there is now, effectively, a 20% reduction on what they can claim.

Changes In How Profits Are Caluculated

Kristen: At the same time that Section 24 was introduced there was also a change in how profits from investing in property need to be calculated.

So, previously, you could automatically claim a percentage of wear and tear. Things like maintenance and decoration could be classed as an ongoing expense.

Now, these costs have to be properly documented, meaning you can only claim for the work you have had done. This makes things a little bit more complicated.

The truth is that when you combine these factors together it's possibly not as efficient or profitable for people who own property, anymore.

Time Frames

Amy: Do you know what the time frames are and how this is being introduced? Is it gradual? Is it sledgehammer?

Kristen: It's not a sledgehammer. Section 24 is being phased in gradually.

So, currently, we have a situation where landlords can claim for 75% of their income from property or some of the interest they can claim for. 75% of that will be at the full rate and 25% will be at basic. But by 2021 you will only be able to claim the basic rates. So, in that regard, it's being phased in over a few years.

Putting It Together

Amy: Okay, Perfect. So, as you say, it's really important for property investors to speak with an accountant or financial advisor. And they need to act on the guidance they get because it's going to affect everybody differently.

Kristen: It is. And despite the campaign to get rid of it, I think this is going to be permanent. Property investment in the UK is a big earner for a lot of people and this is a way that the government can increase its revenue. It's coming in.

Amy: Easy pickings.

But, in our interviews with specialists, we're discovering that with every problem that arises there are always opportunities that come off the back of it. It's always about looking at the situation and working out exactly how you can work with it.

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More Articles with Kristen

  • Introducing Kristen Durose from Red Star Wealth
  • What Investors Need To Know About The Changes In Stamp Duty
  • How Does Capital Gains Tax On Property Work?
  • Buy To Let Limited Companies - Why Are Landlords Considering Them?
  • What Will A Post-Brexit Housing Market Look Like?
  • Can I Use My Pension To Invest In Property?
  • What Can Go Wrong With Property Joint Ventures?

Filed Under: Kristen Durose - Finance

Reader Interactions

Comments

  1. Khote says

    24/01/2019 at 1:08 pm

    Could you please give an example:

    Say Income from Employment 100,000
    Tax and NI is deducted by employer through PAYE on this income of 100,000
    Property Income (Rent Less Expenses except Mortgage Interest) 50,000
    Mortgage Interest of 5,000
    So how is the tax calculated on the above figures
    -2017-2018 financial year and
    -2018-2019 financial year ending April 5th

  2. Betty green says

    20/03/2018 at 2:32 pm

    Will I be able to sell my rented property and buy another rented property to rent out without paying capital gains

    • Robert Jones says

      22/03/2018 at 9:16 am

      Hi Betty,

      Any tax questions and advice would best be covered by your accountant as you want to make sure your 100% looking at the right situation and there are lots of variables around buying and selling property, tax and how it is currently in ownership ie: individual names or limited company. If you speak to your accountant I’m sure they will be able to best advise

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