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  • Tax

    Help! Section 24 conundrum!

    Hi Guys,

    I'm after a bit of advice regarding S24.....

    This is all very new to me so any advice given would be much appreciated.

    Just a few points about myself to put you in the picture.

    My salary away from property puts me me into the 40% tax bracket. My goal is to build up a sizeable portfolio to leave the day job eventually.

    I currently own 3 BTL properties as a sole trader. Each of these listed below.

    Property 1
    Purchase price - £58,500
    Deposit - £17,550 - 70% LTV
    5 year fixed rate @ 3.54% - £120.51 pcm
    Monthly income - £433

    Property 2
    Purchase price - £75,000
    Deposit - £22,500 - 70% LTV
    2 year Fixed rate @ 2.89% - £126.44 pcm
    Monthly income - £500

    Property 3
    Purchase price - £74,000
    Deposit - £22,200 - 70% LTV
    2 year fixed rate @ 2.89% - £124.75 pcm
    Monthly income - £520

    Unfortunately for me I purchased all of these last year!! Until I visited this website I was not made aware of S24 (Talk about a kick in the balls)

    I have £55K in savings which I was going to use to buy further properties..... since my findings on this matter I have well and truly put the brakes on things!

    As there are a lot of seasoned investors on here what would you personally do in my situation?

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    What are your non-mortgage expenses? Ie total of agency fees, repairs&maintenance, travel/petrol costs, etc? Do you earn more than 100k per year in your day job (because that has a huge effect on the tax consequences for you)?

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    Assuming you have no other expenses, you will be deemed (when s24 is fully operational) to have a profit of £1453 pcm (and not around £1075 as is actually the case). 

    Your tax will be calculated (assuming you're below 100k for simplicity) at 40% of 1453, or around £581. Then you will get a tax credit equal to 20% of tour mortgage costs, or around £75. Your net tax bill on your BTL will thus be around £505 (or around 47% of your actual profit).

    If it was me, I would not buy any more in my personal name but instead use a ltd company to buy future properties. You seem to have a formula that works pretty decently so no reason not to repeat that, but forget personal name BTL until s24 is repealed.

    It may also be worth considering paying the mortgages in personal nane down to alleviate the impact (eg bring the moetgage down to a level where your actual effective tax tate

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    You are spot on 47% tax rate

    We are going to see this sanario more in future

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    Learn Change and Adapt ?????

    Don't know what to advise you!

    There are others on this site who will be able to better assist than me.

    I am more interested as to why you didn't know about S24!?

    We LL are trying to work out why LL such as yourself were and are still unaware of S24!

    This means that many LL are making uninformed business decisions by not factoring in what is the biggest tax change affecting any business in over 220 years!

    Clearly when you purchased none of the industry professionals you used to purchase the properties advised you anything at all about S24

    Do you consider this was because they were and are as ignorant as you about S24!!?

    Or is it as I suspect that they were fully aware of S24;  but that if they made you aware of it you would probably have stopped the purchase process to review your circumstances in light of the new S24 knowledge

    That could mean missing out on valuable business with you.

    Though I reckon this is somewhat short-sighted as I doubt you will wish to use these alleged professionals again.

    Either way they are wronguns!

    If they knew and didn't advise you they are being deceitful and if they just plain didn't know then they are incompetent

    Either way you wouldn't want to use them again!!

    When the Budget declaring S24 was announced did you think like most other LL and believing Govt propaganda that it would only affect HRT and only 1 in 5 were one of those!?

    Are there any other LL who you have found were and possibly still are as ignorant as you were about S24

    Gratifyingly for you, you have discovered PT

    Just a shame you didn't in 2015!!!

    Clearly you have been poorly served by those who carried out the property purchase transactions and whilst you are now wise,  it is after the event which doesn't really help you much!

    I think rather than being the victim of your own ignorance it would not have been unreasonable for you to be advised by those who should have known about S24

    As such you are as much a victim of their professional incompetence or deliberate refusal to assist you by telling you about S24.

    There are many that say that as a LL you should be fully aware of the issues in becoming a LL.

    And that it is not up to the professionals involved in your processing property purchase transactions to advise you about things that do not impact on the processes they are carrying out for you.

    I believe this is disingenuous.

    It would have been no hardship for them to just ask you in passing conversation whether you were aware of the new Budget announcements

    S24

    SDLT

    Loss of Wear and Tear

    Etc.

    It must be very annoying and frustrating for you to find yourself in this position.

    What would you do differently now if you could return to the Budget in 2015 mindful of the fact that PT and other sites publicised this iniquitous tax etc?

    It was sometime before the mainstream media were aware of what S24 etc meant.

    It was only motivated LL from this and other sites that alerted the media to these issues

    The ONLY reason I was aware of S24 was because of astute posting by this and other sites which I happen to trawl regularly to keep up with the latest goings on in the PRS

    If it wasn't for sites like this I would have been as equally clueless as you about S24

    Do you consider it good practice for you and other LL you may know to highlight the efficacy of sites like this to prevent yourselves being made fools of by alleged property professionals!?

    As you may have noticed PT etc have no other agenda apart from to help and advise LL on their potential hoped for property journey.

    This obviously wasn't the case with those you used to become a LL!

    Will you now be advising as many people as you know about the benefits of using a site like this ensure the numbers of ignorant LL are substantially reduced with the hoped for resultant effect that you and they won't be stitched up ever again by those who possibly choose to keep vital information from you

    I only came across this site by accident from referral from another website.

    I think that was LRS.

    How many other LL are out there that are carrying out property transactions oblivious to the pernicious and evil S24 tax!!??

    Well you are now one less ignorant LL and good for you, but what about all the other poor sods who could well find themselves involved in transactions similar to you but oblivious to S24!?????

    Personally I believe it an industry disgrace that those involved in processing purchases for LL do not ask LL if they know about S24.

    Especially if the LL is purchasing with a mortgage in their own name; it is about time that professionals stopped trying to keep vital information from LL and be as effusive as they can with info to assist the LL as much as possible

    I feel really sorry for you and reckon you have been taken advantage of.

    Hopefully you will he able to get out of this mess created by you and caused largely by professionals not giving you an inkling that what you were doing might not have been the best way to do things.

     I would suggest that belatedly the PRA regulations will come to the rescue if ignorant LL as the PRA requires assessments of property mortgage viability to take into account S 24 liabilities.

    But of course this new requirement has come too late for you!

    Any mortgage lender or broker will now have to comply with the new PRA regulations which means they will have to inform LL like you about things like S24!!

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    You have only give the bare facts

    You need to sit down and do a full profit and loss for the year April to April

    once you have this info you can then input your figs in a S24 Calculator 

    You will then see how much S24 effects you which it will

    You have cash so you can use this in a number of ways

    My advice Now is don't buy anything until you fully understand you tax situation other wise you could shot yourself I the foot


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    Learn Change and Adapt ?????

    I have found a number of new Landlords such as yourself who have purchased last year

    I have highlighted here a number of times in the past how the So Called professional's  who have helped you purchase the properties have never mentioned to you S24

    I think a lot of passing the buck here

    I would have thought your broker or solicitor would have warned you before you purchased in the first place

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    Learn Change and Adapt ?????

    I think it is fairly safe to say that it will be better to make future purchases in a Ltd company

    It will be relatively easy to calculate the impact of S24 on the tax position relating to the three properties in your own name (Rassie has nearly done it for you in fact)

    You can then decide what, if anything, to consider changing about those 3 - the most likely thing being to pay down some of the debt when remortgaging at the end of the fixed terms (which you might need to do anyway given the latest PRA guidance.  Did you know about that too by the way?)

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    Just another point to make You are on very low interest rates Now I would stress test your Business with a rate of say 5%

    and then work out S24 you will find your Tax rate will be around 65% not 47%

    with every rise in interest rates you will pay higher rate of Income Tax and that's without making a penny more in profit

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    Learn Change and Adapt ?????

    Thank you for all your input. I can assure i was not made aware of this as I would not have put myself into this position in the first place..... in life we are always thrown curve balls and to me this is one of them (unfortunately)

    Rassie, I earn £70K a year & Each property is fully managed at 8.4% a piece.

    Correct me if I'm wrong but to me I have two options.....

    Option 1) use the 55K to pay down each of the mortgages so the mortgage interest is reduced. Then moving forward buy any further in a LTD company.

    If I go for this option it would mean paying down the maximum payment possible each year.


    Option 2) transfer each property into a ltd company paying the stamp duty costs and carry on with my goal

    If I was to go with option 2 do I have to do this once the mortgage term for each property is up for its renewal?


    Thanks for the input guys I really do appreciate it! ?

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    You need to sit down with a Tax Advisor and run the figs

    every one is different best of luck

    I know there are solicitors looking at present of miss selling of BTL property since the S24 Changes were announced

    I have said from the start of this a Duty of care should be in place from Solicitors and Mortgage Brokers to sign post there clients to Tax Advisors before they proceed into the world of BTL

    Someone should have picked up this issue before you completed I think you have been let down

    You wont be the first or the last


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    Learn Change and Adapt ?????