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It's Day 2 of "Tax Week 2016" on Property Tribes, where our focus is firmly on tax and where Section 24 is a looming menace.According to Steve Bolton, Co-claimant in the Judicial Review, "Section 24 is the biggest threat that landlords have ever faced". Co-claimant, Chris Cooper, says "landlords are sleepwalking towards disaster".In this interview, I talk to our tax partner, Michael Wright, about the impact of Section 24, how it is going to affect a lot of landlords who think they are immune to it, and what landlords can to do mitigate the impact and also take action against it: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that many Tory MPs did not even understand what S24 was, and that the PRS would be "bug*ered" if this was not repealed!In the above interview, we also mentioned the fundraising campaign by the Judicial Review team, to fund the "communications campaign" about Section 24.We urge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.DONATE NOWFind our more in our interview with Steve BoltonRITA has created this video with advice on how to mitigate the impact of Section 24:"Tax Week" is to help RITA celebrate the launch of their FREE landlord tax record-keeping app, for small landlords.If you would like to download the app, visit:Google Android Playstore iOS app store Watch out for the following content over the coming week:>The launch of RITA's record keeping app>The abolishment of the Wear and Tear Allowance, what it means for landlords, and how to mitigate the changes.>5 benefits of keeping good tax records.>The hidden dangers of Section 24 - things under the radar that may impact on you.Tune in daily for tax-related content, hints, and tips and to get your tax questions answered by RITA, our resident tax expert!Find out the most important tax deadlines in the landlords calender for 2016. Visit the Rental Income Tax Advisors website.In the meantime, a reminder of some of our most useful tax resources:Landlords' A - Z of property tax expenses - Video Guides Use Your Spouse To Save Tax - Form 17 I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 1 Once Upon A Tax - Part 2 - Helping new landlords with their tax affairs I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 3I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 4 I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 5 I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 6 I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 7I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 8
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
its safe to say if you are reading Property Tribes you will be up to date with Clause 24
Im not sure about the Majority of Landlords have a clue
I started working on this Last Aug to avoid most of the tax
It will take me 4 years to do it but I am glad I have gripped the problem now
The only concession Geoge gave us wa a window of 4 years its now 3.5 years and counting
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 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: https://www.propertytribes.com/use-your-s...12363.html
2. Incorporation and/or using a company for future purchasesThis 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 ContributionsThese 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 DonationsFor 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 AgreementLandlords 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 RentThis 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.
8. Exploring different property typesThe 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 here: https://www.propertytribes.com/hedge-your...-9426.html9. 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.10. And finally...
To stress Vanessa's point above, here is the link to the "Axe the Tenant Tax" page!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.
Hope the above has been helpful and best wishes,
RITA4Rent (Rental Income Tax Advisors)
Specialists in Landlord Taxation
Recommended tax advisors of the Residential Landlords Association
Follow us on Twitter @Rita4Rent
clients (at) rita4rent (dot) co (dot) uk
Never really be interested in pensions as I've alwasy preferred to keep control of my own money but S24 is making me thing about it. Am I correct in the following approximate calculations for a person over 55 and paying 40% tax
Option 1 - Draw an extra £40k and pay £16k tax leaving a net £24k
Option 2 - Pay £40k to a SIpp, draw back £10k (25% allowance) tax free. Take additional drawings of £23k, leaving £14,004 after tax so ending up with the same £24k net/ Balance of £40k invested being £6660 is left in the pension pot.
If this is correct it would mean you end up with the same net income but £6660 is in your SIPP instead of being paid in tax.
You can only pay 40k into a pension if you have nett relivent earnings from another sorce rather than BTL income
If you only have earnings from BTL you are restricted to £3600 pa Gross
If you are running a Ltd Co your company can pay up to 40k into a directors pension
The Company will not pay Corp Tax as its an exspence
and the Director can do what they want with the Pension fund take the Tax Free Lums sum and use draw down on the rest of the funds
Pensions have great advantages now with IHT but you woud need advice on this from an IFA
Thanks DL, very helpful and definitely worth doing further research on.
In response to the very informative RITA post
Many sole trader LL cannot do any of the things suggested apart from increasing rent or selling up.
Some can't even sell up as doing so will bankrupt them as they wil not have sufficient sale proceeds to pay the CGT bill
Especially if they have remortgaged to expand their portfolio
This means only increasing rents is the option remaining
If rents can't be increased sufficiently then basically such LL are bankrupts walking!!
If so time to start divesting personal assets so when the inevitable bankrptcy process starts you are assetless apart from the BTL properties.
This needs to be done now as it is possible the OR will attempt to undo any transaction younger than 5 years old.
LL need to accept their fate and start managing the process 5 years before it hits
Any thoughts as it sounds likely osbourne will not be in the new cabinet?
We have yet to see whether the lastest Govt formation is to continue the Osborne war against LL.
Osborne is likely to be banished to the back benches
This he won't tolerate and will resign his seat
No loss there then!!.
BOE announced that there will be a slow down in BTL ?????
Its very odd ?? now we have left the EU the presure for to ewta Landlords out of bussiness has now subsided
But the question is will our new Govt change its mind on clause 24
Leaving the EU could be our savior
I think its so unfair to tax Landlords retrospectivy I just hope we have a change it will save us all a lot of worry of what will happen next