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  • Section 24 HQ

    Section 24 - I am in total shock!



    (*Moderator note:  Important experience of S24 split off from another thread into its own thread*).

    I have been very blase and wrong in what I thought was the way that Section 24 was going to affect my Buy to Let business

    Now after receiving my accounts back from my accountant, I cannot believe my eyes.  I am in total shock and am terrified about my future finances.

    I have 14 properties in joint names with my wife all of which have interest only mortgages on them.  Apart from one of the they are all on 75% LTV fixed rate mortgages.

    I find that the way the policy was described by the government it would only affect a small number of landlords and if you are a 20% tax rate tax payer it would not affect you.  What total lies!  Both I and my wife have retired from.our professions and have now been pushed into the 40% tax bracket by the section 24 calculation.

    The more worrying aspect is that WHEN interest rates start to move up we will become bankrupt after paying all of out earnings and life savings to the government just to pay our tax Bill's.  12 years of hard investment up in smoke.
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    Have you identified how far into the 40% Tax Bracket you are? Would moving restructuring bring you back down tax brackets?
    Such as a few properties into a Limited Company or selling a property or two (and lowering LTV of others).

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    _________________________________________________________________________


    My posts are not financial advice but often me rambling - passing time on a coffee break.
    Our team at Bespoke Finance offers Limited Company Buy-to-Let and Cheap Life Insurance.

    _________________________________________________________________________


    Thanks for sharing this Kev and i am sorry for your plight.  It shows how unfair the retrospective nature of S24 is.

    If I were in your shoes, I would be inclined to seek a second opinion from a specialist property accountant (forgive me if your accountant specialises in landlord tax ... ).

    You may need to consider selling a few of the worse performing properties and use the proceeds to pay down the debt on some of the others to lower your LTV.

    See - Landlord survival plans - curated

    Good luck in finding a way through this ...

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    Hi Vanessa,

    My accountant was not in the office today and is going to call me tomorrow morning.

    We were advised not to move our properties to a limited company a few years ago when Section 28 was first announced.  Instead we were advised to move 90% of the portfolio over to my wife via a declaration of trust which HMRC accepted.  I was already earning well over the threshold in my employment so it made sense to use Angie's tax limits.

    The last few years it appeared to work well but this was probably hidden by the fact that our allowable expenses were a lot higher than the last tax year.  This was due to 7 remortgages and boiler replscements and double glazing etc.

    But of course the highest expense is the mortgage interest which when removed almost doubles the amount of profit that the business makes.  Even though we know it doesn't make because you still have to pay the mortgages.

    Of course selling the properties isn't as simple as it sounds because if you want to sell at a time when a tenancy is ending or the property becomes vacant it probably won't tie in with the end of the fixed rate mortgage period so early redemption penalties would be applied.  There's also agent and solicitors fees and the dreaded capital gains tax.

    I will urgently arrange to sit down with my accountant who has buy to let's himself so should know what to do and see what he suggests.

    What really niggles me is the fact that you are paying the extra tax on profits that you haven't actually made.

    The government said it wasn't fair that landlords had tax breaks on their mortgage interest when residential mortgage holders didn't get any.  However they want us to run the PRS professionally as a business so it doesn't tie up that you would ensure that the business becomes unviable.
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    Hi Kev,

    This has stressed the hell out of me for over 2 years.

    I have 32 BTL's all in my name all at 85% LTV.

    All bought pre crash.

    My solution through gleaning from experience research and speaking with tax advisers is.

    Form a partnership with the wife in tax year now. A partnership  does not incur SDLT when you do the following

    Transfer the beneficial interests of the properties into a Ltd co in tax year 2 the added advantage is you wash out any CGT gains you've made previously

    but you have to be careful when selling shares.

    Your property business is now working under 17% corporation tax levels.

    I'm not a qualified tax adviser but the only option left is to claim malfeasance against HMRC on bankruptcy which would probably put me into an early grave.

    So I opted for the above solution.

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    J Harris


    I would get a second opinion, I am in the same position as you but have been unaffected. 

    Are you claiming ALL you expenses? 

    17 BTLs on 85% ltv brought me in £25k profit. 

    They should work out profit normally and if under the 40% threshold, the additional tax on the interest to be added back should be the same as the 20% credit, (I think that's the best way to explain)

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    That is not how the Tax calculation now works.

    Stage one is to add Rent (after non loan interest expenses) to other gross income - and calculate tax on that aggregate figure.

    Of course any part of that aggregate gross income above the current £50k basic rate threshold - will be taxed at 40% or more.

    Stage two of the Tax calc then gives you a 20% credit for loan interest when S.24 is fully operational.

    The earlier view that S.24 only affects 40% plus taxpayers was therefore simplistic - especially for landlords with full time jobs - or indeed any landlord with other (non rental) income close to 40% tax threshold.

    This in large part explains why a number of landlords who formerly were content to charge below market rents - are often now minded to charge full market rents so as to partially offset the extra taxation.

    Time will tell whether that ploy means more frequent tenant turnover with higher void costs.

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    Don't forget that the threshold could go up to £80k, so this would offset a big part of the loss. Probably still in favor of HRMC, but way better than things stand at the moment

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    I am hoping it rises to 80k that would be helpful

    Its the retrospective aspect of S24  which is just awful

    Its a cunning tax


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    If it happens it will soften the blow of S24, but would prefer scrapping new S24 rules altogether

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    Be great if it did but that plan is no more trustworthy than any other political manifesto.

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