January 13, 2023 1:36 pm

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James Nicholson

What is Section 24 Tax? Well, Section 24 is killing property investing in the UK. 30% of landlords have left the market due to the tax implications of it. There is no denying that landlords are concerned. 47% of landlords had altered their investment strategies as a result of the changes, and 6% want to entirely sell up (or have already done so).


What is Section 24 Tax? 


As of April 2021, income tax relief for residential property will only be eligible for basic rate tax reduction. As a result, more income tax will need to be paid on rental income, especially if you move up to the higher or additional rate of taxation.

Section 24 (also known as “tenant tax”) of the Income Tax Act addresses interest costs on house or property loans. ‘Deductions from income from house property’ is the title of this section. Loan interest and the standard deduction are eligible deductions.

The Income Tax Act contains various sections that allow you to obtain tax exemptions on specific investments and expenditures. The Act emphasizes the purchase of residential property as one of the most important investments. The government recognizes that housing is a critical need as well as an asset, and many investments toward your first house are tax-free.


Section 24 for Property Investors

For landlords who are already higher-rate taxpayers, it will result in sizable additional tax expenditures, and it will force some landlords who are already basic-rate taxpayers into higher-rate tax. There is concern that the increased tax burden may cause many landlords to sell, which would result in a shortage of rental homes.

In terms of cash flow, landlords who are already higher-rate taxpayers will be severely hurt, but it’s possible that landlords who are already basic-rate taxpayers and are transitioned into higher-rate tax may have the hardest time adjusting.

For tax reasons, mortgage interest is currently subtracted from income. It won’t be under the new system. When wage and rental income are combined, the “additional” income may cause a landlord to fall into a higher tax bracket.


Who is behind Section 24 Tax? 

When George Osborne was chancellor in David Cameron’s cabinet, he enacted Section 24.

He thought it was unjust that landlords received mortgage tax relief but owner-occupiers did not, stating, “Buy-to-let landlords have a big edge in the market because they can deduct their mortgage interest payments against their income, whereas home-buyers cannot.”

He predicted that the measures will diminish landlord demand, making it simpler for first-time buyers to climb on the housing ladder.


What can we do about section 24 tax as property investors? 

Landlords have two options: they either transfer ownership of an existing property or form a limited company to purchase a property.

Currently at 19%, corporation tax is expected to drop to 17% in 2020. The higher rate and additional rate taxes of 40% and 45% are far greater than that. As a business expense, mortgage interest can be totally deducted from taxes. However, not everyone should choose it. If you transfer a property to a business, you’ll likely have to pay stamp duty and capital gains tax because the legal ownership has changed.

It may also be more difficult to obtain a mortgage as a corporation, however more lenders are now offering limited company buy-to-let mortgages. If you decide to form a limited company, you’ll need the assistance of an accountant to determine the most tax-efficient manner to manage your income.



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