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  • Tax

    Section 24 - unreported dangers that may bite



    It's the final day of "Tax Week 2016" on Property Tribes, where we conclude our week of tax-related content with another post about the biggest threat landlords are facing - Section 24.

    Section 24 of the Finance (No.2) Act 2015, which received Royal Assent on 18 November 2015, will start to apply from the 2017-18 tax year and, in graduating stages up to 2020-21, will reduce a landlord’s ability to offset mortgage interest costs against rental profits before calculating the amount of tax payable to the Government.

    Our tax partner, Michael Wright, of Rental Income Tax Advisors has these insights into the unreported dangers of Section 24 and why many more landlords will be affected than at first thought:


    RITA have a blog on this topic - The hidden dangers of Section 24 if you require further information.

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that many Tory MPs did not even understand what S24 was, and that the PRS would be "bug*ered" if this was not repealed!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

    "Tax Week" was 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 

    Here's a round up of the content from the past week:

    >The launch of RITA's record keeping app

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

    We hope you've enjoyed "Tax Week 2016" and downloaded the FREE RITA app for small landlords to manage their tax records!

    Find out the most important tax deadlines in the landlords calender for 2016. 

    Visit the Rental Income Tax Advisors website.

    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 3

    I’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 7

    I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 8

    I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 9

    I’m a new landlord. Where do I start with my tax? - Once Upon a Tax - Part 10
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    The National Landlords Association estimates that the initial loss in tax relief this year alone would push over 440,000 lower-rate taxpayers, around 22% of the market, into a higher tax bracket. In total, it is estimated that 8.2 million people will be effected in England alone by the changes.

    Full/source article

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    8.2 Million is a huge amount

    so much for only a few Landlords effected by S24

    The Govt Has to wake up with figs like this

    The Car is coming around the corner now and starting to slide on black Ice 

    The Next phase is when the wheels lock up next year and more control is lost

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    Learn Change and Adapt ?????

    I don't believe that estimate. Are the calculations behind it show anywhere?

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    I bet its right The NLA do a lot of surveys and I have found them quite good

    If They are right the Brown smelly stuff will hit the fan

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    Learn Change and Adapt ?????

    The NLA are hardly neutral in this so I trust them less than things like the English Housing Survey, especially when the results do not make sense, Most other surveys suffer some for of selection bias. Those done by mortgage companies tens to exclude landlords without mortgages. Those done by organizations like NLA tend to be biased towards the type of landlord who joins such an organization - the more professional ones. I suspect the figures used for the estimate come from such a survey, and were then incorrectly extrapolated to all landlords.

    The governments estimate that only 20% of landlords will be affected by S24 does seem reasonable, despite the article calling it tosh. I checked it a while ago, and posted the details somewhere in PT. Something like 55% of landlords do not have mortgages, about 15% were already companies so it only needed about a third of the rest to be affected. I am sure I found a source to confirm that that was reasonable.


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    If they are only 50% right its still a huge fig

    I would rather trust the NLA on this issue far more than the Govt

    If anyone sends out fake news its Politicians they are past masters at this as we all know  

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    Learn Change and Adapt ?????

    Here is the original NLA statement from October 2016

    As I suspect they took the results of their survey and applied it to an estimate of the total number of landlords.

    *NLA Quarterly Landlord Panel – Q2 2016 (777 respondents)

     - 22pc of approximately 2 million landlords = 440k

    Given that they were campaigning against S24 it is not surprising that they haven't attempted to compensate for survey bias. But given that people who are affected badly by something are much more likely to speak up than people who are not affected their survey will have almost certainly produced an estimate that is too high.

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    S24 surely refers to more than 440000 LL!?

    Yes this number are currently  BRT who will be pushed into HRT territory  but sole trader LL who are currently  HRT will still pay tax on fictitious  income.

    So any mortgaged sole trader LL irrespective of current tax status will be paying tax on fictitious  income.

    This is what should be highlighted.

    Yes of course it will cause most sole trader LL  to be affected by S24.

    But it is the fundamental  premise of S24 which will cause S24 LL  to be taxed on fictitious  income.


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    Paul my dear friend it has stated  as we have predicted

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    Learn Change and Adapt ?????

    I predict  only when it goes horribly wrong will Govt react

    I remember the warnings years ago from those who understood these things that UC would go horribly wrong

    They have been proven correct.

    I believe based on this situation  that Govt will not react until S24 does its worst

    That means bankrupted LL; homeless tenants, down valued properties, scarce rental supply,  rapidly  increasing rents.

    After all it was only when the effects  of the Irish S24 became obvious did the Irish Govt finally relent to accept they had got it wrong and are now rapidly reversing the effects of their S24.

    But the damage has been done

    Rents increased by 50% and won't be reducing

    LL  were bankrupted and tenants made homeless.

    Left alone the market was perfectly  capable of managing itself.

    No way would rents have increased by 50% in 3 years had the Irish Govt not tried to curry political favour with GR.

    Govt interference in the PRS does no good.

    It always goes wrong.

    The market works very well.

    If Govt really wants to control a market then credit controls are far more effective.

    No LL  has the right to a certain LTV loan.

    Govt can force banks as they have now done via the PRA to control the BTL mortgage market.

    S24 was never needed.

    Pay rates and subsequent  LTV are easily able to be finely adjusted by the new PRA.

    They can easily manage the BTL mortgage market credit supply.

    Had the PRA been around decades ago then we would not have a property  market as it currently  exists

    Reducing LTV requirements means fewer properties may  be purchased  for a given amount of deposit monies.

    It might be that the PRA considers too many BTL mortgages are being advanced

    It could easily stop that growth by requiring  lower LTV and  higher pay rates

    There is and was no need to interfere with the prevailing PRS taxation methods.

    S24 LL  will just either on the vine  until the public outcry as to where have all the LL  gone reaches such heights  that the Govt will be no longer able to ignore the problems  they have caused

    Only then will Govt react

    By then it will be too late

    It is highly unlikely  that those LL  forced out of business  by S24 will bother returning.

    The PRA makes expanding awkward.

    S24 will cause a much reduced PRS and far higher rents.

    Some FTB might have bought ex-LL  stock though unlikely  as they could buy easily before S24; but there will be a shortage of rental stock.

    Only Brexit and a possible reduction in demand might save the day so Govt hopes the reduced supply will cope with the possible  reduced demand

    We shall see!!

    As P Jackson correctly  states mortgaged sole trader LL  are a small but not insignificant  part of the PRS.

    However  they do house millions of tenants

    If they go they will be missed

    Who are the homeless tenants gonna call to rent from!?

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