Section 24 and what that is all about.
If you have any kind of loan or mortgage interest on your buy-to-let property that you own in you own name, you are increasingly feeling the pain of Section 24. This piece of legislation was introduced in April 2017 and is gradually being phased in over the 4 years following the introduction. What it means is that by 2021 you will no longer be able to claim mortgage interest, or any other property finance, as tax deductible. Instead, rental profit will be taxed with a maximum deduction for finance costs of 20%, the basic tax rate.
As an example, if you receive £1,000 rent per calendar month, and you pay a mortgage interest of £750 per month, prior to the introduction of Section 24 you were allowed to deduct the £750 from the £1,000, with HMRC requiring you to only pay tax over the remaining £250 (your profit). However, from 2021 you will no longer be allowed to deduct the mortgage interest and instead you will be taxed over the full £1,000 (your revenue). Some Landlords will potentially end up with a tax bill that is higher than their profits before tax!
Please talk to us how we can mitigate the financial impact of Section 24 on your cash flow.
Capital Allowance
If you own a property that is being operated as Serviced Accommodation, you may be eligible to claim for Capital Allowance. What this means is that you can offset your Capital Allowance against your income, which can be a huge tax benefit for you as the property owner.
Council Tax
It can be advisable to transfer your Serviced Accommodation property from council tax to business rates. Not only can it be cheaper, you may also be eligible to benefit from business rates relief. Again, please do contact us and we will be happy to discuss this in more detail.