how section 24 affects investors
28th February 2019 by Property Deal Store Administrator in Investors, Legislation

How Section 24 or the ‘Tenant Tax’ Affects Property Investors

Introduced in April 2017, Section 24 will have a potentially large impact on the profitability of landlords who use financing on their properties. Thankfully, for higher rate taxpayers in particular, Section 24 is being phased in gradually…

What is it?

Section 24 stipulates that landlords can only claim basic rate tax relief on their property finance – such as a mortgage. Previously higher rate tax payers could claim 40%, and with the majority of landlords in this tax bracket, the changes could have significant implications on the profitability of portfolios that are heavily financed.

How is it being introduced?

Announced in the summer budget of 2015 and initially introduced in April 2017, Section 24 will continue to be rolled out until April 2020, when it comes into full force.

When Section 24 was first introduced in April 2017, landlords could claim higher rate tax relief on the first 75% of their finance costs, rather 100% of their costs as it was before Section 24. In April 2018, this fell to 50%. This April it will fall again to 25%. Then, finally, in April 2020, it will fall to 0% and landlords will only be able to claim basic rate tax relief – currently 20% — against all their finance costs.

Who is affected?

If you have finance on your buy-to-let properties then Section 24 will affect you, by increasing your tax burden as highlighted above. The knock-on effect of course, is a decrease in the overall profitability of your portfolio, meaning if you have finance on buy-to-let property, you can’t afford to ignore this.

There is good news if you’re a basic rate tax payer – these changes won’t affect you. The same goes if you don’t currently have any outstanding finance on any of your properties, as you won’t be claiming tax relief anyway.

What can I do about it?

Of course, there isn’t much you can do regarding the actual changes, but there is always great value in being as prepared as possible for the changes still to come. The first step is to speak to your accountant or tax specialist who can advise you in more detail. If you don’t have one, we suggest that you get one – contact us if you would like a recommendation.

Section 24 has been seen as controversial by many, not least because it seems the government are always looking for ways to discourage landlords from growing their business or getting into property investing in the first place.

With potentially more wholesale regulatory changes still to come, it makes sense to get a trusted advisor in place now.

What else has changed recently?

The case for getting professional advice has been made stronger by an influx of recent changes designed to restrict landlord activity. In April 2016, the wear and tear allowance was abolished, meaning landlords can now only claim for work carried out, increasing the complexity for landlords and making property investing less attractive.

Mortgage arrangement fees and broker fees are also no longer tax deductible.

Then, when it comes to letting out your property, from 1st June 2019 you will no longer be able to charge tenants application fees, credit check fees, or other admin fees. The same rules will apply to any agent that you use. We have written an article to fully prepare you for these upcoming changes that you can access from 14th March, sign up today so that you don’t miss it!

So, what’s the good news?

There is no doubt about it in our minds that property investing is still a lucrative market to be in. The good news for investors with quality, sustainable portfolios is that these new regulations will help to separate the wheat from the chaff. Less scrupulous competitors and those with little experience will struggle to navigate the new world of property investing, meaning more opportunities will be available for professional investors.

For this reason, we are incredibly excited about what the future holds for Property Deal Store and our investors and sourcers. This is a platform dedicated to not just matching sourcers with investors, but to education, too. We educate and empower sourcers, which produces quality stock, enabling our investors to build sustainable portfolios that will be profitable for years to come, regardless of changes such as Section 24.

“Brave men rejoice in adversity, just as brave soldiers triumph in war.” Seneca

– Janice Minihan, co-founder and director of Property Deal Store

Why not become a member of Property Deal Store today so that you can access all of our tools and resources created for budding sourcers and investors? You can sign up for free and access our premium content straight away here