Blog Post 12 – SA Tax Benefits – Section 24 (Part 2 of 7)

What is Section 24?

Section 24 is a piece of legislation imposed by HMRC that restricts the amount of interest payments made on finance that can be offset as a tax deductible expense against a second property. You can find more information about the government policy here.

Who Is Affected?

The most likely and hard-hit will be the average landlord. For any landlord that has taken out finance (i.e. a mortgage) on their rental property and pays it back in either capital or interest payments will be subject to these changes.

Who is Not Affected?

  • UK companies that hold property;
  • Non UK companies that hold property, and;
  • Landlords that own Furnished Holiday Lets (FHLs).

How does it work?

The changes come into place for tax year 2017/2018 and will be fully implemented by tax year 2020/2021. In the first of these tax years, those affected will be able to claim 75% Interest Relief as apposed to the 100% previously claimed. This will reduce by 25% each tax year, until 0% in 2020/2021.

Some mitigating measures have been put in place to reduce the impacts of Section 24, which includes a 20% tax credit on interest payments. Therefore if you are a basic rate tax payer, you will NOT see any effect of Section 24 on your bottom line. However, higher rate tax payers and above should start to see a noticeable change from hereon.

If this is all a bit confusing then you can watch our Section 24 Explainer Video which has an example which will walk you through the changes.

What Does This Mean?

This means that for many landlords that are affected by Section 24, should now be receiving a smaller after tax profit than they did so before the change was implemented. For some unfortunate landlords, they may see their property costing them more money than they are bringing in. Their buy-to-let investment could quickly turn from being an asset into a liability.

We have a Section 24 Calculator to help you understand in detail how this may affect you and put some numbers to the test.

Why is This Important to Serviced Accommodation Operators?

The reason this is relevant to Serviced Accommodation is because it’s not relevant. Wait, what? Allow me to clarify.

It has already alluded to that Furnished Holiday Lets are NOT affected by section 24. That means no extra tax to pay and no more eating into your bottom line.

Section 24 is the reason why so many landlords are now looking to change their property from a normal buy-to-let to a short-term let.

“But I Want a Steady Income”

But what if you like having regular, steady cash-flow, and not the fluctuations synonymous with traditional short-term lets?

Eden Burgh has the solution for you, whereby you can operate the property as Serviced Accommodation but receive a guaranteed rental income every month. Contact Us to find out more on our range of services.

Previous Post: Post 11 – SA Tax Benefits – Introduction (1 of 7)

Next Post: Post 13 – SA Tax Benefits – Capital Allowances (3 of 7)

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