Section 24 - A Buy-to-Let tax change that may affect you!
We've put together a guide for you with our friends at AIMS Accountants for Business, one of the leading accounting franchises in the UK, established over 25 years ago.
Even plans with the best of intentions can sometimes be difficult to implement. As of April 2017, the Government has been putting changes to the tax relief that landlords can claim into effect, in line with the Section 24 Finance Act1. The changes have a laudable aim behind them – Parliament is effectively trying to bring private landlords in line with public ones.
But what exactly is Section 24, how is it going to affect you as a Landlord and how you can prepare for it?
What is Section 24?
Section 24 is a new measure that changes the tax relief that landlords can claim on financing. Before April 2017, if you were a higher rate taxpayer you would be able to claim higher rate tax relief, however, by April 2021, landlords will only be able to claim basic tax relief on financing costs. The change is being phased in; when Section 24 was first implemented, as a Landlord you were allowed to set 75% of your financing costs against rental income, obtaining relief at your top rate of tax on that 75% and at the basic rate (20%) on the remaining 25%. Fast forward to April 2019 and the percentages will be reversed, and by 2021 only 20% relief will be available, meaning that many landlords’ tax bills could be on the up.
How will it affect me?
With Section 24 in place, you’ll only be allowed to claim basic rate tax relief. A lot of Landlords in the higher bracket of tax are going to be affected and could now experience a large percentage drop on the amount of tax relief they can claim.
If you are one of the landlords in a higher tax bracket, it could even affect your child tax credit assessments and student loan repayments. However, because everyone’s situation will be different, it’s best to do your own research, find out how this will affect your personal circumstances and seek professional advice.
AIMS Accountants for Business have been operating as tax advisors for over 25 years. With plenty of experience in dealing with property taxes, an AIMS Accountant can work with you to figure out where you’re most at risk, and the best method to help deal with any issues.
However, there has been some discussion over if Section 24 will be implemented in the right way. Henry Ejdelbaum, Managing Director of AIMS, comments that “The suggested implementation of the changes hasn’t been done in a way that will necessarily suit all landlords. For many landlords across the country, the changes may be less than ideal.”
How can I prepare?
Some landlords may think that their only option is to hike up their rent and try and make up for any losses they make, but there are other options out there. For instance, if your spouse is currently a joint owner with you but they’re in a lower tax bracket than you are, you can transfer the property owners name to them1.
With the new guidelines being slowly integrated, the best thing that landlords can do at the moment is be well prepared for what’s to come. Read up on how it will affect you, and if you’re unsure about anything then seek professional advice.
The Limited Company solution
Another option, if you’re not already doing so, is to operate your property letting through a limited company. This would mean that the mortgage interest payments would be fully offset against profits. Transferring existing property into a company can trigger various tax charges so seeking advice from an accountant is recommended. An AIMS Accountant will be able to give you the best idea as to what will work for you and how to structure your company.
Operating as a limited company, you’d be best served opening a business bank account, and the Cashplus Business Account can benefit you as a landlord. You can open an account online in minutes, set up Direct Debits and Standing Orders for free, receive bank transfers at no cost and even integrate with accountancy software. If you’re a property company, we also offer business expense cards, which can be used for managing landlord expenses efficiently and eliminating petty cash. Find out more here.
This content was created on 14th December 2018
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