Clause 24 loophole?

Clause 24 loophole?

8:52 AM, 22nd April 2016, About 6 years ago 5

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Is a potential loophole to Clause 24 a mortgage company giving mortgages at 0% (no interest to offset against tax) but charging an up front arrangement fee equating to the mortgage interest that would be charged over the fixed rate term? The arrangement fee could be added to the percent

Technically cost neutral to the mortgage company although with the demand for the product (if this is a loophole), they could effectively charge a premium rate to maximise profits creating a win win situation for landlord and mortgagee. Laffer Curve in action?

Just a thought that someone with more influence could potentially explore.



Mark Alexander - Founder of Property118 View Profile

8:57 AM, 22nd April 2016, About 6 years ago

Hi Paul,

Nice thinking, but the tax change includes all finance costs, not just interest, but arrangement fees as well.

Alistair Cooper

10:44 AM, 22nd April 2016, About 6 years ago

I wonder about the Islamic/Sharia compliant buy to let mortgages entitled 'home purchase plans' offered by Al Rayan and no doubt other banks. The 'interest' payable on these is defined as 'rent' payable to the bank on the % of the property effectively purchased by the Bank at the outset of the loan. Would this 'rent' be deductible for tax purposes in a similar fashion to say a 'Rent to Rent' type deal or could it be interpreted as a 'Finance Cost' by our friends at HMRC?

steve p

11:17 AM, 22nd April 2016, About 6 years ago

Reply to the comment left by "Alistair Cooper" at "22/04/2016 - 10:44":

I think it would just be seen as a finance cost of the mortgage so will be hit by clause 24...

What about....
lets say your rent 1000pcm, mortgage interest is £500pcm, expenses is £100pcm..
Assuming 40% tax payer

by 2020 you will pay tax on 10800 @ 40% which is £4320 tax

You lease the property to your own ltd company for £100pcm (Offset against expenses so no tax), the company then rent the property to the tenant for £1000pcm, the profit for the company is 10800, in 2020 will be taxed at 17% so £1836 paid in corporation tax leaving £8964 which you pay yourself in dividends, £5000 is tax free so tax at 32.5% due on £3964 which is £1288.3...

Total tax paid is £3124.30

Obviously this does not scale up as £5000 dividend tax free is a one off allowance. Although you could pay yourself £5000 and pay your wife/husband the rest or leave the rest in the company and then buy a property in the company name when enough has accrued.

Mike W

12:26 PM, 22nd April 2016, About 6 years ago

Reply to the comment left by "steve p" at "22/04/2016 - 11:17":

Hi Steve, I think HMRC require 'arms length' transactions between individuals and close companies/anti avoidance legislation. That would require 'market rents'. But I'm not a tax expert.

Landlord Lucan

20:10 PM, 22nd April 2016, About 6 years ago

The OP's plan might not work in the long term, but it might still be useful for front-loading finance costs during the transitional period. For example, if you were to pay a large arrangement fee for a 5-year deal in 2016, then you could deduct the whole of the up-front cost from your turnover and then enjoy very low interest rates until 2021..

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