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  • Tax

    Government sets out Section 24 roll out



    The government has released further details of the implemetation of Section 24.

    A new page on the Government website sets out how the changes will be phased in from April 2017.

    The amount of Income Tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax.

    The changes will:

    • affect you if you let residential properties as an individual, or in a partnership or trust
    • change how you receive relief for interest and other finance costs
    • be gradually introduced over 4 years from April 2017

    Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.

    All residential landlords with finance costs will be affected, but only some will pay more tax.

    Those unaffected:

    • UK resident company
    • non-UK resident companies
    • landlord of Furnished Holiday Lettings

    The finance costs that will be restricted include interest on:

    • mortgages
    • loans - including loans to buy furnishings
    • overdrafts

    Other costs affected are:

    • alternative finance returns
    • fees and any other incidental costs for getting or repaying mortgages and loans
    • discounts, premiums and disguised interest

    If you take a loan for both residential and commercial properties, you’ll need to use a reasonable apportionment of the interest to work out your finance costs for the residential properties. Only the finance costs for the residential property business are restricted. This also applies if your loan was partly for a self-employed trade and partly for residential property.

    The restriction will be phased in gradually from 6 April 2017 and will be fully in place from 6 April 2020.

    This chart shows how it will work:


    You can find out more by visiting the Treasury website .

    The page also mentions two further implications that we recently covered on Property Tribes:

    Section 24 - unreported dangers that may bite 

    Loss of landlord's Wear and Tear Allowance 

    The appearance of this page on the Treasury website brings into focus the reality of Section 24 for small landlords.

    Section 24 has been described as the "biggest threat landlords have ever faced".  Property Tribes supports the Judicial Review into Section 24, by co-claimants Steve Bolton and Chris Cooper.

    In our interview with Lord Flight, at the Tenant Tax Summit in June, he confirmed that there had been no impact statement, that many Tory MPs did not even understand what S24 was, and that the PRS would be "bug*ered" if this was not repealed!

    So here's a reminder of the fundraising campaign by the Judicial Review team, to fund the "communications campaign" about Section 24 to create more awareness.  

    We urge all PT landlords to make a donation to support this vital cause.

    DONATE NOW

    Find our more in our interview with Steve Bolton 

    If you are concerned about Section 24 and the impact on you then read our thread:

    The impact of Section 24 and 10 ways to mitigate it.  

    Our tax partner, Rental Income Tax Advisors (RITA), are here to support the PT community and answer any questions you may have.  

    Related content:

    Landlord apathy will be the death of us

    Lettings agents need to wake up to Section 24 

    Tenants face Section 24 tax bombshell say LLs 

    Section 24 - landlords must take action now 

    Lender apathy will be the death of us 

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    This is a grenade going off in the PRS and the complete ignorance and apathy being shown by the 2 million plus landlords is astonishing !

    If fully implemented the repercussions for the South East is cataclysmic -already there is a saturation of hmo's in most towns and this will only get worse with the promotion of hmo's as a goose that lays the golden egg by this guru's etc

    Any landlord geared above 65% may find he / she having to.supplement there property breakeven from there oen pocket and with house prices stabilising or even falling in my areas many may find that even selling might not be a option cause of reduced demand / appetite from investors .

    The wave is building up momentum out in the sea - the only question now is what's the damage going to be when it hits landfall!

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    spot on

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    Learn Change and Adapt ?????

    I agree Maz.  Your tsunami reference sums it up perfectly!

    The Section 24 tsunami will be hitting landlord shores next April.

    Landlords need to be taking action now to shore up their defences.

    They should also support the Judicial Review as that is our greatest hope of getting this repealed or changed from being retrospective.

    All the property community should work together to create awareness, by sharing this post on social media for instance.

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    I believe Lord Flight is correct when he says MPs are largely unaware of Clause 24, still less the potential devasting impact on housing supply and the incomes of small hard working business people providing an essential service.

    We landlords could start by giving it its proper title, "Clause 24 of the Finance Act 2015" (even I had to go away and look it up!).  If any MPs are reading this, their first thought will be "Clause 24?  What's that?  I dunno, I've got more urgent stuff to deal with!".  By spelling it out clearly, at least they know what to look for on the House of Commons database.

    Clause 24 is just one part of the Act, and when MPs voted on it I believe most of them just thought they voting about VAT etc.

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    Mandy Thomson
    lodgersite.com

    It's now Section 24 Mandy.  That is the correct term.

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    Were one wishing to be pedantic, it is in fact

    Section 24 of the Finance (No. 2) Act 2015

    which has the catchy title  "Relief for finance costs related to residential property businesses"

    https://www.legislation.gov.uk/ukpga/2015...24/enacted

    </pedant>

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    i have another words I could use ??? the main thing is a Landlord understands it and its implications


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    Learn Change and Adapt ?????

    These are my predictions

    The JR campaign will fail to achieve sufficient pledges to continue the campaign

    S24 will after about 6 years be abolished once the effects are realised to be disastrous.

    Basically just like happened in Ireland.

    Many LL will be forced out of business and quite a few will be bankrupted.

    So as a LL you will need to have sufficient funds in place to cover all S24 tax.

    Just as happened in Ireland rents increased by 40% to cover the Tenant Tax costs.

    My rents will be increasing by this amount over the next 4 years.

    If I can't increase rents sufficient to pay the tax and for normal rent increases I will have to sell up booting out 12 tenants!

    Only by increasing rents will I survive.

    This was what Irish LL had to do and it was the tenants that ultimately paid

    The LL just became unpaid tax collectors!

    The Irish Govt belatedly realised the massive policy mistake and abolished their C24

    But not before tenants have suffered massive rent increases

    It is not known how many LL were forced out of business or bankrupted because of the Irish C24.

    I think most survived by increasing rents to pay for the tax

    The UK Govt is sufficiently stupid to carry on with the same experiment until they eventually come to the same conclusions as the Irish Govt and abolish C24.

    So LL just have to try and survive before C24 is eventually abolished.

    There will be a rental crisis as there will be insufficient rental property.

    Turgid times ahead!

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    Realy hate Taxation isnt it boring and overly complex for no reason.

    The main solutions to Clause 24 / Section 24 / #TenantTax seem to be reduce debt or sell investment properties or purchase in LTD co.

    Ive seen landlords refinance there whole porfolio into LTD Co, ive seen others refinance the properties with the highest loan, ive seen others refinance unencumbered into LTD Cos and use funds to pay down others.
    What has certainly changed is New Enquiries, all seem to be switching to the LTD Co route.

    Its good to see the Govenment on its new webpage outline "UK resident company" "won’t be affected by the introduction of the finance cost restriction", confirming at this late stage would suggest the Govt plans no further ammendments and the next stage being Report stage: House of Commons 05.09.2016 before "Royal Assent".

    (There has been many ammendments to the Finance Act, just not Section 24)

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    Unfortunately many LL are for various reasons not able to do any of what you suggest

    They are reduced to either increase rents or sell up or subsidise the tax with other personal resources.

    Subsidising might be worthwhile if capital in the property is substantial.

    But many LL face Armageddon!

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