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  • Section 24 HQ

    Don’t let the Tax tail wag the Investment Dog



    Don’t let the tax tail wag the investment dog, meaning, don’t make investment decisions solely based on tax considerations.

    Please discuss statement.

    Over the past month I have been angry and upset by seeing other entrepreneurs affected by section 24 and doing calculations to predict my famiy future.

    I have started to reflect more on the situation. See The BTL Vs pension post for my contribution.

    Property has some features which doesn't get mentioned.

    You can increase market rent and improve property value.

    Income for life  and can outsource management to tradesmen/lettings agent.

    Creates legacy wealth for future generation.

    There is some downsides and headwinds - voids, rent caps etc.

    But in property BTR/BTL somebody else is building up my pension/ income for tomorrow.

    Inflationary hedge and you control the asset. ( More control if unencumbered).


    The government wants you to do something exit or deleverage and I might decide to do the opposite. Obviously more slowly and prudently.

    Okay the government pulled a fast one on us , but pay the tax and grow further.

    Suddenly de-leveraging might not be best solution. Why changing strategy?

    Getting rid of crap properties is something that should be done.

    But answer this . Who pays the mortgage interest and helps towards the capital. The tenant does.

    Only the gurus of early 2000-2007 and followers who advised negative cashflow and hope for capital growth should suffer. 100% mortgages and infinity returns just took a shock.

    If already way above HRT then you know where you stand.

    If borderline and will affect child benefit and other aspects. Then grow richer, diversify.

    Are you the one in five statistic? Well don't understand why you didn't incorporate after 4-5 anyway ?? For limited liability aspect.

    I would expect more outrage at 3% stamp duty which really does hamper expansion but it's a cost.

    I suspect professionals in HRT bracket are asking is it worth it. Worth the hassle.

    As they probably earn more daily than properties bring in monthly. Rejoin the rat race.

    I got into property to leave the rat race and have more time with family.

    Comparing yesterday and being stuck in the past is not going to giving a better future.

    Apologies if hurts your feelings or seems blunt.

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     Wisdom involves an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs. 

    The problem with S.24 is that it is so severe for HRT that it has a massive affect on investment decisions.

    Even if you can survive and pay the tax, it now means you have to work very hard and run your business very efficiently to be able to afford the tax bill.I suppose I would like a normal business where I achieve a reasonable profit for reasonable effort.otherwise life can get too stressful.ie you end up making very little money  for a lot of effort.Do I really want to spend my remaining years on this earth just to pay the tax man.There is a saying that less is more so deleveraging may be a good idea.

    I am still adapting to the new conditions and will be seeing an accountant in february.There are things that can be done to reduce the tax bill without incorporating ie set up a company and it charges a management fee to  manage the properties in your name.This method alone may be highly effective.

    Diversify into commercial and holiday lets.

    They say that a persons highest form of wealth is their peace of mind.I think S.24 has had a terrible effect on landlords happiness.Adapting to change can be difficult.

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    https://www.telegraph.co.uk/investing/buy...o-britain/

    What if it does get reversed? And I'm sorry to say I didn't know this had been used in Ireland first. 2009.


    My point is some people are

    • Sell off family silver -- part with a valuable resource for immediate advantage. Even to deteriment of future legacy / inheritance for children.
    • "Cutting off the nose to spite the face" is an expression to describe a needlessly self-destructive over-reaction to a problem.


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     Wisdom involves an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs. 


    Yes correct i have held back to date to see if there is any possibility the Govt goes back on this before i take drastic action. This lot have caved in on so many policies they are very fickle, they seem to make it up on a whim

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    "My point is some people are

    • Sell off family silver -- part with a valuable resource for immediate advantage. Even to deteriment of future legacy / inheritance for children.
    • "Cutting off the nose to spite the face" is an expression to describe a needlessly self-destructive over-reaction to a problem". 

    I think you've got it wrong about people's actions SK8 - what they are doing is going with the prevailing conditions of this particular time, just as they did when they were leveraging, re-mortgaging etc when they built their portfolios in the first place.

    You HAVE to adapt, as the alternative is to roll over, give in and pay what is in some cases more in tax than you are taking yourself as income for running the whole exercise. Believe me, few landlords will do the latter and why should they???

    With the strategy of reducing portfolio size and paying down mortgages of the remainder what we are doing is crystallising what we have built up - I have not bought myself a new motor and gone to the Caribbean with the proceeds of selling down some properties, I have put that money into equity for the remaining ones, so reducing costs at this particular time.

    At some time in the future, when the idiotic S24 has done the inevitable damage to the PRS that we predicted and been repealed, it is the easiest thing in the world to then re-mortgage, pull out capital and expand the portfolio again.

    This equity is not being squandered on a millionaire lifestyle it is being invested in bricks and mortar!

    Speaking for myself, everything I do - EVERYTHING, is done with my family in mind and I work on the pretext of 'what I have is not really mine, it is in my safe keeping for the future generation', and that is how I even come to have a portfolio in the first place with never having had start-up capital or a well paid job.

    I have scrimped and saved and slaved away all those years for my family, not for me to be taxed by the government more than I even earn myself for my troubles.

    No way Jose?!?!  That is not going to happen. NEVER. I will adapt and change and hang on in there until the time is right and then I will carry on as before.

    I have never had a problem with paying tax, in fact I have been proud to pay my share in the past but I am nobody's fool and there is no way I am going to ripped off by S24. Nope that will not happen!!

    ,

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    Well said Bill. Youve hit the nail on the head....it boils down to the fact we are no longer working for ourselves we are simply rats in a wheel producing income for the Mother state to send the fruits of our work back to them. Its Communism, its horrible, its wrong. Sorry i am no mug, i work for me i dont and wont work for them i already pay more than enough of my individual personal tax contributions to the state. I aint paying anymore, not unless i get greater services from the state for my extra contributions.

    Setting up a separate Ltd letting agent and taking on a few other LLs properties and then charging your self a guaranteed rent to rent contract agreement at a vastly reduced rent is one i am testing the numbers on at the moment


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    Setting up a separate Ltd letting agent and taking on a few other LLs properties and then charging your self a guaranteed rent to rent contract agreement at a vastly reduced rent is one i am testing the numbers on at the moment

    I have done the above and its working well

    Its a bit of a paper chase but it has to be done


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    Learn Change and Adapt ?????


    guys be careful on this thought pattern. If you have property and are then acting as the agent and taking rents etc you have to do so at Market Rent. We have been through a 12 month tax investigation with HMRC and had to change how we operated. We use a limited company to manage our own property, we collect the rents within the company and return any excess to the owners (us).


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    sure happy to chat drop me a  line and I will contact you when you have time

    Regards DL

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    Learn Change and Adapt ?????

    Would GAAR impact on such an arrangement?

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