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  • Section 24 HQ

    23,052% tax increase due to Section 24



    I have just done my accounts for 2018-19.

    I have had a bad year with multiple voids, expensive refurbs and even more expensive repairs.

    This has left me with a small profit of £19 using generally accepted accounting principles.

    However according to the Conservatives Alice in wonderland economics I am liable for tax on a profit of £5545. I get 20% relief on 50% of the finance costs,  -£1165 = £4380.

    £4380/£19 is 23,052 percent increase in tax liability.

    I liked George Osbourne's pension reforms but this ill conceived nonsense is destroying the PRS.

    I guess that was the general idea?

    Regards,

    Tim.

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    Hi Vanessa,

    I have amended my post as I had not accounted for the 20% relief on 50% of the finance costs.

    I would be 40% tax payer except that I try and make enough pension contributions to take me below the threshold.

    Regards,

    Tim.

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    I’m puzzled why you only receive 20% relief on 50% of the finance costs.  

    When S24 is fully implemented all tax relief will be withdrawn on finance costs and replaced with a 20% credit.  

    Can you expand on why you receive it on only 50% of the finance costs?
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    For 2018-19 interest relief is limited to 50%. It will be 25% this year and 0% in 2021.

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    The part of the finance cost that doesn’t receive tax relief qualifies for a 20% credit, a basic rate tax payer, including allowing for finance cost, will be in the same financial position.  If the finance cost pushes them into higher rate tax they will still receive a 20% credit.  You do not appear to be including this in your figures or am I missing something.
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    Hi EssexLL

    I have non-property income below the 40% threshold of £46350 which is taxed at 20%.
    The £5545 imaginary 'profit' pushes me into the 40% tax band.
    50% of the finance costs have already been accounted for in working out the BS £5545 figure.
    However my tax liability is not on the real profit of £19, my liability is around 17% of £5545 = £941. Some of the £5545 is taxed at 0% but most is taxed at 20%.
    Another way of calculating this is to look at the tax liability pre-S24 = £19 x 20% = £4.
    The liability is now £941.
    941/4 = 23,535% increase.

    I would think there are many LL's in the SE who were just about keeping their heads above the water before S24. Now they will either have to subsidise their portfolios from non-property income, go bankrupt or be driven out of the sector.

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    Thanks for clarifying that 50% of the finance cost had been allowed for in the profit figure, I think I now understand your calculations.

    You are correct S24 will cause some landlords significant problems.
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    Send this to your MP and ask him/her to explain how this is a just and fair tax system.

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    One minister recently stated: "The Government has no responsibility to treat people fairly". I can't remember the context but we all know where we stand now.

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    Ouch

    I dont think he was out to destroy the PRS .

    He wanted it contained and brought into line and he is succeeding in that goal

    Whilst it hurts and some will be crucified there is a greater good one can argue

    Fergus Wilson had about 1000 BTL units . He dominated a town

    He could serve a sec 21 on a whim  and make 1000 people homeless in 2 mths

    That kind of catastrophic power in the hands of one person is not good

    Especially if they don`t wield that power with wisdom

    If action hadnt been taken to curb BTL`ers there would be 100  FW`s in 10 or 20 years time

    Imagine 100 towns each with a landlord with a 1000 properties

    Imagine they clubbed together and plotted to increase their power and influence

    The growth of BTL`ers was growing  exponentially

    Society could not allow that amount of power over peoples lives to be in the hands of a few

    So George taxed us heavily to stunt our growth .

    We are duly stunted

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    Jonathan Clarke. http://www.buytoletmk.com