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  • Tax

    Section 24 Landlord "Survival Guide"

    Our "Get into the property groove for 2017" campaign is reaching a finale with our new "Section 24 Survival Guide" produced in association with Bamboo Auctions.

    The guide is a simple and easy to understand download, which is free for anyone to access.


    Our tax partner, Rental Income Tax Advisors, were also involved in the creation of the guide, and here is a reprise of my interview with Michael Wright of RITA.

    In the interview, Michael mentioned his blog - The hidden dangers of Section 24 was one of the reasons that RITA had decided to speak out against Section 24.

    In our interview with Lord Flight, 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that many Tory MPs did not even understand what S24 was, and that the PRS would be "bug*ered" if this was not repealed!

    In the above interview, we also mentioned the fundraising campaign by the Judicial Review team, to fund the "communications campaign" about Section 24.

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


    Here is RITA's guide to mitigate the impact of Section 24:

    There are various strategies in mitigating section 24.  As mentioned, there is no one-size-fits-all solution, but popular suggestions are:

    1.    Exploring a Form 17 route.  
    This essentially alters the profit splits from the 50:50 split, allocating a greater share of the profits to the lower earner and therefore lower taxpayer.  Further details can be found on the PT thread here: http://www.propertytribes.com/use-your-s...12363.html

    2.    Incorporation and/or using a company for future purchases
    This is a popular consideration for some landlords, given mortgage interest and finance costs may still be claimed for properties held in a limited company.  

    Further benefits include a lower rate of tax compared to the higher personal tax rate, indexation allowance, potentially lower rates on selling properties, amongst others.  However on the flip side, personal allowances and annual exemptions in personal ownership would be lost, and whilst the tax rates are lower, extracting money from the company can attract further tax implications, not helped by the recent changes in dividends.  

    In addition, for those owning property personally, there can be benefits when selling a property you have lived in, whereas there can be serious consequences if you live in a company owned property.  If you are looking at transferring existing property to a company, unless you are able to benefit from incorporation relief, then you may be facing an immediate capital gain on sale, given an individual and a company are two separate legal entities.  

    There is a lot to weigh up here, and this is just scratching the surface, but advice is strongly recommended prior to making any big decisions as to whether incorporation is for you.

    3.    AVC Pension Contributions
    These can be a good mechanism to delay the point at which you start paying the higher rate of tax.  For a lot of landlords, your AVC pension contribution can extend the basic rate tax band, and therefore for example, expose a greater amount of your income to the 20% rate of tax, as opposed to the 40% rate of tax.

    4.    Gift Aid Donations
    For those who make charitable donations under the Gift Aid scheme, these have a similar mechanism to the above, and can again, delay the point at which you start paying a higher rate of tax.

    5.    Profit Sharing Agreement
    Landlords who own properties jointly, who are not married, may be able to benefit from a profit sharing agreement.  In some respects, this is similar to point 1 above, as a way of allocating a greater share of property profits to the lower earner as opposed to the higher earner.  Again, as with all these suggestions, it is best to seek professional advice here first, so as to ensure you are fully aware and understand the full theory here, as this is just a brief overview.

    6.    Pay Down Mortgages?
    Of course, the Section 24 changes affect those with mortgages, and so despite this being one suggestion, it is worth reviewing a before and after scenario here, as landlords could see a greater tax bill considering they would not receive the finance cost “reducer” in their tax calculation.  

    The best suggestion would be to see what would be left over in your bank account, explore what can be done with the excess money you have from not having to pay the mortgage any more, and explore how best this money can be invested.  Quite a lot of considerations on this one!

    7.    Increasing Rent
    This is one suggestion which may help mitigate the effects of Section 24, although again, care must be taken to review a before and after scenario.  Whilst there would be an increase in rent received, there would also then be a greater taxable profit to factor in, so a case therefore of weighing everything up.

    See - Changing landlord dynamics & rent rises

    8.    Exploring different property types
    The Section 24 changes affect residential properties, and so it may be worth exploring commercial property and/or furnished holiday lets.  

    With regards the latter, it may well be that one of your existing properties could be suitably converted into a Furnished Holiday Let, although you would still need to ensure it meets the criteria as otherwise it would revert back to a standard residential BTL.  The criteria is explained in greater detail in one of our previous posts Hedge your bets on holiday lets.

    9.   Sell poor performing property

    A more obvious one here, but if one of your properties within the portfolio is performing poorly, now is the time to review you affairs on the whole and make good decisions moving forward to plan to best effect. You could sell poorly performing properties and use any residual equity to reduce the LTV on your existing stock.

    Bamboo Auctions are offering you the opportunity to sell your property online with no entry fees. When talking to Bamboo, quote "Section 24 sucks" to qualify. 

    10.   And finally...

    Doing nothing is a very risky strategy.  Assess your position and understand the impact on you.  Plan ahead and stay informed.

    There is much to consider, and the above is just a brief outline.  It is highly recommended to seek tailored advice suitable for your own circumstances.

    Get your SECTION 24 "Survival Guide"  in association with Bamboo Auctions.

    Find out what a landlord of 29 years is doing:

    If you have got value from this content, please share it on social media using hashtag #GITPG2017.

    The campaign/content so far:

    Day 1   #GITPG2017 - 5 things to kickstart your year

    Day 2   What landlords should focus on in 2017

    Day 3   Property positives for landlords in 2017

    Day 4    Low risk way to get started in BTL

    Day 5    Ways to assess tenant demand

    Day 6    Get into the networking groove in 2017

    Day 7    Become a more active landlord in 2017

    Day 8    Tips for landlord self-assessment tax returns 

    Day 9    Property marketing technology - space mapping

    Day 10  How to keep your eye on the property prize 

    Day 11  Efficient property management

    Day 12    Property strategies suited to the 2017 market

    Day 13    Rental and property price due diligence

    Day 14    Landlord hammering to continue in 2017?

    Day 15    Property developer Nicole Bremner on scaling up in 2017

    Day 16    Staying strong in the face of Section 24  

    Day 17   Dynamic developer - Paul Nicholson | Luxor 

    Day 18   Stewardson brothers - strategies for 2017

    What other things will you be doing this month to get back into the property groove and prepare for the new year?

    SEE ALSO  -         The post-Brexit & Section 24 landscape

    UP NEXT -             440K landlords forced into higher tax bracket

    DON'T MISS -        I Met With My Local MP To Discuss S24



    Interested to hear feedback about the guide ... anyone have any comments?


    Hi V,

    Great guide!

    I've done #1 and doing #'s 6,7,8,& 9.

    Sadly, #2 impossible due to huge GGT and SDLT costs.

    I'll look into #3




    Thanks for that Dom, but did you visit the actual stand-alone guide?

    You seem to be referencing the content on this page, not the actual guide.


    Hi V,

    Yes, I had scrolled through the guide, and have just reminded myself of the content.

    Tbh, the guide was good, but I thought your bullet points were better in some ways.


    I would also add one other thing to the AVC ??? any person can pay up to £3600 into a personal Pension and they can claim full tax reife on the premium

    The fund will grow tax free and its ring fenced from IHT after 50 you can also take 25% tax free

    It effectively give you a higher tax band rate by £3600


    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.

    Good guide Vanessa and I enjoyed watching the interview with Phil Davidson of Negative Equity UK.  As he pointed out, those with negative equity and in areas of low or negative growth, are most likely to experience difficulties - which of course stands to reason.

    He also made the point that many people who got into btl years ago, may by now have only ten years to go on some btl mortgages, so regardless of S24 this needs to be noted and a plan put in place.  I make various spreadsheets to look at my information and one of them orders by the Term left to run on mortgages.  I found six that expire within the next ten years, which are my current target to repay as the next priority.

    Well done for bringing balance with this thread, as some have mentioned wanting:-)



    Author of The Complete Guide to Property Strategies and The Complete Guide to Property Investing Success
    Learn more at http://www.completepropertysuccess.co.uk

    I also post property updates on my Facebook Page

    "It is the small decisions you and I make every day that shape our destiny" Anthony Robbins

    Yes Sadly this is the Elephant in the room for a lot of Landlords

    My advice is take action early Pay down loans Now or set aside cash into ISA ect  for the rainy day

    Hopefully if Landlords see a little capital growth the problem will lesson

    But doing nothing is not an option on this subject Thank God I only have five ME Mortgages.


    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.

    There are many LL that are not able to do any of the things that RITA suggest

    Before S24 they had a viable business

    After it many have no choice but to sell up

    Many even if forced to sell up will be unable to pay CGT bills.

    Many LL have little alternative than to start planning for bankruptcy by hiding any assets they have from HMRC.

    They need to start this NOW so that in 4 years they have as little asset value that could be taken by HMRC debt collectors or the OR.

    If they would be able to pay CGT bills, but need to sell anyway, they should start selling up now.

    Because as time goes on more LL victims of S24 will realise they have to sell up.

    If they leave it for a few more years even more LL who realise they have to sell will all enter the sales market at the same time.

    This will make selling at a full market price very difficult.

    It will make their CGT payment bills even worse with less equity to pay some of them.

    I have already seen a few properties coming to market with tenant in situ.

    These properties can only be as a result if S24

    Very rarely over the past 6 years I have been watching have I seen LL selling up with tenants in situ.

    Those LL that are selling up must surely have realised that they will be a victim of S24 and wish to sell into what is a fairly OK market currently

    We have yet to see the full impact of the PRA which will substantially reduce the numbers of viable investors, so this will drastically reduce investibility of many properties.

    LL who have properly realised the impact of S24 will understand that with all the other avenues closed off to them that RITA have suggested that they need to get out of Dodge ASAP.

    Tough on the poor tenants, but the LL have been placed in an impossible position, they have no choice but to exit stage left!


    Add another one to the list

    Kick out a good tenant because  she is on benefits and you can get more rent on the open market.


    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.