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SECTION 24 NEWS

Wed 12 Feb 2020

James Allen, Director

Everybody seems to be talking about mortgage interest relief recently. A lot of people believe this to be just another tax that won’t really impact their bottom line. For those landlords who own their property outright, with no mortgage, this change will not make any difference to the way they run their portfolio. However, for those landlords who have mortgages on their properties, they will see a big rise in their tax bill and a big chunk of their profits will likely go. The landlords who fall into the highest rate tax bracket of 45% will be hit the hardest.

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Section 24 was introduced in April 2017 and has gradually been phased in over the last few years. With the introduction of this new tax landlords will no longer be able to claim mortgage interest, or any other property finance, as tax deductible. Instead, rental profit will be taxed with a maximum deduction for finance costs of 20%, the basic tax rate, by 2021

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If you have any kind of loan or mortgage interest on your buy to let property, then yes

If it is a large proportion of your costs, you will now start to pay tax on those costs, as well as your profit. Use the link to the RLA online calculator (in comment below) to determine your tax liability:

https://www.rla.org.uk/taxcentre/tax-calculator.shtml

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Along with mortgage interest relief restriction, mortgage arrangement and broker fees will no longer be tax deductible

From April 2016, the wear and tear allowance for all landlords was scrapped. Previously, if a property was rented furnished, HMRC would allow you to offset 10% against your net income each year, regardless of whether you replaced any items. Now, this will only be allowed if you replace furniture like for like, so be wary of �������� replacing furniture if it’s necessary

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Although we are 3 years into the 4 years phase in period, it’s never too late to make plans! There are a number of options available depending on your personal circumstances. My advice would be to speak to a property specialist accountant and/or a tax expert who will be able to explain how much higher your tax bill will be and if there is any way to minimise it.