January 22, 2024 3:52 pm

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Nikka Sulton

The Section 24 tax changes signify a restriction on tax relief for finance costs associated with private landlords on residential properties, confining it to the basic rate of Income Tax. George Osborne first announced these changes in the Conservative government’s summer budget of 2015. Since April 6, 2017, these alterations have been gradually phased in over four years to allow buy-to-let landlords a transition period for adapting to the elimination of finance costs as a tax-allowable expense.


The following table displays the phasing in period of Section 24 for residential landlords:

Tax Year Deductible % of finance costs Basic rate tax reduction
2017 to 2018 75% 25%
2018 to 2019 50% 50%
2019 to 2020 25% 75%
2020 to 2021 0% 100%

Starting April 6, 2020, mortgage interest is fully disallowed for residential buy-to-let landlords, being replaced with a maximum 20% tax credit. To put it simply, landlords can no longer deduct finance costs from their property income to calculate taxable property profits. Instead, they receive a basic rate reduction from their income tax liability for these costs.


Will Section 24 Impact my Property Business?

For basic-rate taxpayers, the changes pose a relatively neutral impact on their finances. With income tax paid at a rate of 20% and a corresponding 20% tax credit on finance costs, there is no immediate financial loss. However, the scenario shifts for higher-rate taxpayers, who face an additional 20 percent tax on each pound of interest paid. This aspect necessitates careful consideration and evaluation when engaging in property transactions.

Regardless of your current tax-payer status, it is essential to conduct a thorough forecast of the implications brought about by these changes. Section 24 has the potential to propel landlords into higher tax brackets, as exemplified by instances where taxable profit surged by 400%. Such shifts can unexpectedly transition a basic-rate taxpayer into an advanced-rate taxpayer, highlighting the importance of proactive assessment and planning.


How will Section 24 impact cashflow?

There’s growing concern that landlords, slow to respond to Section 24, may soon encounter a cashflow crisis in the next two years, driven by the intricacies of the UK tax system. The graph underscores the severity of the situation in 2022, highlighting the delay in tax payments catching up with the actual tax bills. The intricate workings of the tax system compound the challenges, heightening the anticipation of financial difficulties for landlords in the near future.


What counts as ‘Finance Costs’ in Section 24?

For the purpose of defining how Section 24 impacts residential landlords, ‘Finance costs’ include:

  1. Mortgage interest: A primary component contributing to finance costs.
  2. Interest on loans to buy furnishings: Encompassing interest linked to loans for acquiring furnishings.
  3. Fees incurred when taking out or repaying mortgages or loans: Covering any fees associated with the initiation or settlement of mortgages or loans.

Finally, just for clarity, tax relief is not usually available for capital repayments of a mortgage or loan, and the tax credit only applies to the recently disallowed finance costs and not capital repayments.


Will Section 24 ever be repealed?

It is a possibility, and some experts suggest it’s quite plausible, given similar reversals in other countries. Take Ireland, for instance, which implemented comparable measures in 2009 but gradually reinstated relief to landlords starting in 2017. In Ireland, the deduction of interest on residential mortgages has now increased back to 100%, with 5% increments expedited from January 2019.

Mortgage Interest Relief in Ireland: 

  • Before 2017: 75% of the interest
  • 2017: 80% of the interest
  • 2018: 85% of the interest
  • From January 2019: 100% of the interest

While there’s a belief that Section 24 might be repealed in the future, the likelihood of it happening during the current government term is low.


Why is the Section 24 Tax Credit a ‘Maximum’ of 20%?

The Section 24 tax changes, introduced in the 2015 summer budget by George Osborne, place restrictions on tax relief for finance costs incurred by private landlords on residential properties, limiting it to the basic rate of Income Tax. This significant alteration, phased in over a four-year period since April 6, 2017, aims to provide buy-to-let landlords with an adjustment period to cope with the removal of finance costs as a tax-allowable expense.

This gradual implementation period allows landlords to navigate the changing landscape of taxation on property investments, ensuring a smoother transition and allowing them to make informed adjustments to their financial strategies.


What is the impact of Section 24?

It’s termed a maximum because, in certain situations, you could potentially profit from the tax changes. However, measures are in place to ensure you don’t end up financially better off. For instance, if your finance costs at 20% amount to £2000, but the tax changes result in only a £1500 increase in your tax bill, applying a £2000 tax credit would mean gaining £500 at the expense of HMRC and other taxpayers.

To prevent this, regulations dictate that in such a scenario, you would receive a tax credit of only £1500.


Are Landlords Taxed on Turnover?

Businesses traditionally deduct interest on loans as a legitimate expense before calculating tax liabilities. However, Section 24 alters this practice for private landlords with properties in their names or through partnerships. Critics argue that landlords are now being taxed on turnover rather than profit, characterizing it as a shift to taxing a ‘fantasy profit’. The change challenges the conventional approach to tax calculations for landlords, marking a notable shift in the taxation framework applied to property ownership. 


Why is Section 24 called Section 24?

Section 24 is derived from the amendment made to the Finance (No. 2) Act 2015, earning it the colloquial abbreviation ‘S24.’ It is commonly referred to as the ‘Tenant Tax’ due to widespread concerns that both landlords and tenants may bear the associated costs. 


Why does Section 24 exist?

  • Government claim: BTL investors had an unfair advantage over owner-occupiers in financial assistance for mortgages.
  • Objective: New rules intended to increase availability of homes for residential buyers, especially first-time buyers.
  • Reform: Changes in mortgage tax relief for BTL mortgages aimed at reducing speculation in the housing sector.
  • Concern: The Bank of England worried that potential house price falls could worsen if landlords sold properties to exit or consolidate.
  • Government goal: Professionalizing the industry emphasized as a key objective.


How might Section 24 be hurting your Property Business?

  • Section 24 can lead to adverse effects on your property business, including inflated profits and a shift into a higher tax bracket.
  • Larger tax bills and increasing uncertainty about future tax planning can hinder your business’s financial stability.
  • The impact on cash flow may force you to put a hold on plans to expand your property portfolio.
  • Property sales may become necessary to cover tax obligations, creating a cascading effect on your assets.
  • This situation not only jeopardizes current plans but also poses risks to your retirement savings.
  • To cope with financial challenges, you may find yourself taking on more tasks personally to save money.


How can Less Tax 4 Landlords help landlords with a Section 24 problem?

Consider the benefits of our professional advice, including: 

  • Avoiding the need for remortgaging or title changes, eliminating CGT or Stamp Duty implications.
  • Adopting a lender-friendly business structure tailored to your specific requirements.
  • Establishing seamless succession planning and safeguarding against marital break-ups.
  • Depending on your business needs, you may enjoy:
  • Full relief for finance and mortgage costs under Section 24 Tax Changes.
  • Reduced Capital Gains Tax (CGT) on reinvesting in your portfolio.
  • Mitigation of Inheritance Tax within two years of trading.
  • A maximum tax rate of 20% on your property income.



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