Section 24 Tax Is Now Hitting Tenants Hard

Section 24 Tax Is Now Hitting Tenants Hard

9:34 AM, 3rd September 2021, About 3 years ago 21

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Rental demand and hence the average price of UK rent is at an all time high and continues to sky-rocket, but why?

Well, we predicted this six years ago when the UK Government first announced the introduction of the Section 24 Tax.

If you don’t know what that is, then you’re probably not a landlord, so please allow us explain.

Section 24 Tax prevents landlords from offsetting their finance costs against profits, but only private landlords. No other types of business in the UK are affected by the Section 24 Tax. In other words, whatever other form of business you might be in, be it car rental or a Dentist, you can still offset your finance costs against your profits.

The problem with the Section 24 Tax is that landlords can end up paying more tax than they actually make in profit after paying their mortgages.

Clearly this isn’t viable, so they have just a few choices:

  1. Sell their rental properties to owner occupiers – a lot have done this, which is one of the reasons for increased demand for rental property
  2. Put the rent up – which is one of the main reasons that rents are now at an all time high
  3. Move their properties into a Limited Company – because they would then no longer be affected by the Section 24 Tax law

You might forgiven for thinking that option 3 is the logical move, but there are problems with that too. Many landlords do not understand how this can be done without having to refinance, pay Capital Gains Tax on moving the properties to another legal entity and paying Stamp Duty on the transfers.

The Tax Consultants at Property118 have helped hundreds of landlords to transfer their properties into Limited Companies, but that’s just scratching the surface. There are over two million properties in the UK Private Rental Sector.

There has been a lot of campaigning about the unfairness of the Section 24 Tax from Landlords, but the Government refuse to back down. They have their counter arguments of course, saying that they are trying to “level the playing field” between homeowners and landlords, but that’s just hogwash. The Government see landlords as a soft target for collecting more tax, probably because UK private landlords have been so demonised by the mainstream media for years now. Sadly, the general public don’t give this too much thought, which is why quality rental property in the UK is now in such high demand and rents are at an all time high and still rising.

So what can be done?

If you are a landlord, the obvious way forward is to book a Tax Planning Consultation with a Property118 Tax Consultant to weigh up your options. However, that does not help tenants. Most landlords will quite rightly look to charge as much rent and make as much profit as they can. Maximising returns is what business and investment is all about of course!

The bottom line is that unless the Government incentivise further investment into the development of more UK rental property, demand and rents will continue to rise as more landlords go with their only other available options to sell their properties to First Time Buyers or put their rents up. One other solution is to drastically reduce the size of the UK population, but I don’t think many people can see that happening any time soon.

The best way to reduce demand is to increase supply.

A good example of this is hotels, where supply exceeds demand. On that basis, prices remain competitive and quality improves as hotel operators compete for business. Therefore, increased supply also improves quality through competition. Additional tax and regulation does the opposite of this.

The only other solution I can think of is for everybody in the UK to buy a home of their own, but that’s just unrealistic. There are a million reasons why some people people prefer to rent or are simply not in a position to buy.

What are your thoughts? Please comment below.

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Mick Roberts

11:22 AM, 3rd September 2021, About 3 years ago

That's it Mark,

We get rents down by increasing supply & competition. However cause of Section 24 & Selective Licensing & Universal Credit & EPC changes & I could go on & on, more good Landlords pack up, less houses to rent, remaining Landlords charge what they like.

And standards too, my tenants don't ask for 'ote any more as they've seen all their mates been evicted last few years & still homeless. They just happy they got a home at £150 a month cheaper rent than what it should be.


12:04 PM, 3rd September 2021, About 3 years ago

George Osbournes catastrophic policies need to be reversed…..simple as. Section 24 and stamp duty has killed further growth, along with council tax charges on void properties and single banding for HMOs. But the myopic policies will just get worse with epc unobtainable standards and less protection from rogue tenants. Rents will keep soaring. Good luck tenants…….you’re going to need it!


12:10 PM, 3rd September 2021, About 3 years ago

This is exactly what i expected to happen and have sold 18 of my properties over the last 5 years and have served S21 on the remaining so will sell these over the next 2 or so years . My leaving the landlord market is a direct response to S24 and the tax implication.


12:29 PM, 3rd September 2021, About 3 years ago

Absolutely agree with most of your points Mark. However, I’d challenge the statement that many landlords don’t know about the possibility of restructuring their business into a limited company without incurring penal tax implications on the transfer. I’d hazard a guess that most landlords who don’t know about this possibility are actually landlords who couldn’t go down this route anyway, simply because they don’t own enough properties to satisfy one of the prerequisites.

Mark Alexander - Founder of Property118

13:13 PM, 3rd September 2021, About 3 years ago

Reply to the comment left by Binks at 03/09/2021 - 12:29
I do follow your logic, but that doesn't explain why we have had more and more landlords asking for help every day that passes for the last six years, to the extent that our Tax Team has grown tenfold in the past five years and we are still recruiting!


13:33 PM, 3rd September 2021, About 3 years ago

Reply to the comment left by Mark Alexander at 03/09/2021 - 13:13
My comment was purely with regard to incorporating an existing portfolio - which is a niche solution really viable only for large landlords.
I totally get why tax planning for landlords in general is keeping you very busy, it’s a minefield out there.

Mark Alexander - Founder of Property118

13:41 PM, 3rd September 2021, About 3 years ago

Reply to the comment left by Binks at 03/09/2021 - 13:33
I couldn't agree more. Nevertheless, year on year the number of landlords we are helping to incorporate continues to grow at a rapid pace.

Many of those we talk to say they haven't done anything until now because they thought the Government would backtrack. I still think we are only scratching the surface in terms of these people finally getting off the fence and the vast majority who could incorporate are still "fence sitting" hoping all their tax related problems will go away. On the one hand, that's guaranteed - because they will eventually die. On the other hand, the really sad thing is that by doing nothing they will pass far greater problems onto their nearest and dearest in terms of inheritance tax.

Monty Bodkin

15:50 PM, 3rd September 2021, About 3 years ago

A lot of ex rental properties have been sold to 2nd homeowners and Airbnbers.
They aren't necessarily being sold to owner occupiers.

Mick Roberts

17:49 PM, 3rd September 2021, About 3 years ago

Reply to the comment left by Mark Alexander at 03/09/2021 - 13:13
I've got about 15 close Landlord mates, some who bike with me every Sunday. And only one of em know about and understand this Section 24. So yes u right, lots do not know about it.


18:01 PM, 3rd September 2021, About 3 years ago

Reply to the comment left by Mick Roberts at 03/09/2021 - 17:49
Mick I’m curious - are your friends’ properties owned outright? With no mortgage, Section 24 makes no difference. Otherwise I can’t imagine they’ve not noticed the impact on their taxes?

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