Section 24 treatment for financing EPC upgrades?

Section 24 treatment for financing EPC upgrades?

11:20 AM, 14th June 2022, About 2 months ago 11

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Hi everyone, I was just thinking as a property investor renting out properties about being faced with the high costs of upgrading to meet minimum future energy efficiency standards (EPC).

We are being led to understand we will need to carry out improvements by a certain date.

However, in order to finance these costs I am thinking of approaching a lender for a loan, but how would the interest charged on a loan be treated for tax purposes ie non-allowable or with a basic rate deduction like interest on a mortgage under section 24??

Many thanks

DC



Comments

Mark Alexander - Founder of Property118 View Profile

11:53 AM, 14th June 2022, About 2 months ago

All finance costs are treated the same for individual landlords. You cannot offset the finance costs against rental income but 20% of your finance costs become a “Tax Credit” to reduce your tax bill.

For example, if your finance costs are say £10,000 a year you will get a £2,000 tax credit off your tax bill

reader

12:33 PM, 14th June 2022, About 2 months ago

Hello there,

A slight divergence from the question but the whole issue of financing such insulation and energy efficiency improvements requires consideration. It is not just the S24 implications that require government to provide for the costs to be allowable expenditure for income tax purposes. What about capital cf revenue expenditure? What about creating a S24 exemption for such works?

Jerry Stone

12:37 PM, 14th June 2022, About 2 months ago

I have lobbied my MP who has written to the business minister about allowing capital improvements against income rather than capital gains to assist Landlords with these costs.

I would suggest that you do as well.

Mark Alexander - Founder of Property118 View Profile

12:38 PM, 14th June 2022, About 2 months ago

Reply to the comment left by at 14/06/2022 - 12:33
I agree, but accounting for and monitoring compliance on that basis would be a nightmare. Better to just scrap S24 but I can't see that happening any time soon.

LaLo

13:43 PM, 14th June 2022, About 2 months ago

So many rules and regs which has cost me £1,000s . Insulation will cost £1,000 more and it won’t end there!

Denise G View Profile

20:45 PM, 14th June 2022, About 2 months ago

I have a related EPC question:
I understand that should we be unable to achieve an EPC C on one of our rentals and so need to apply for an exemption, we will need to be able to evidence that we have spent £10K trying to do so before we would qualify for an exemption.
My question is: if we upgrade the storage rads currently in the property now (and electric rads are our only option as the estate isn't connected to a gas supply), will the amount we spend out be allowable as a part of the £10K?

Mark Alexander - Founder of Property118 View Profile

21:14 PM, 14th June 2022, About 2 months ago

Reply to the comment left by Denise G at 14/06/2022 - 20:45
Might be worth starting a separate discussion thread with that question Denise

John Grefe

10:06 AM, 15th June 2022, About 2 months ago

Reply to Denis |G left 14/06/22
I am considering have solar panels fitted to generate
electricity for my house. This will offset energy costs quite a bit. I have a neighbour who has done this, costing £7000 (VAT apparently 0%). That's if your building is suitable.
fellow landlord, Cambridge

Beaver

12:45 PM, 16th June 2022, About 2 months ago

Reply to the comment left by at 14/06/2022 - 12:33
I agree with this. Out of interest a trial on heating with hydrogen started recently in Wales.

https://www.homebuilding.co.uk/news/hydrogen-heating

This link calls this a "world first" but this is already being done in Sweden.

Coincidentally this week I also had a chat with somebody who has a friend who wants to fit solar panels to his property (to heat a swimming pool). He isn't allowed to have all the panels he wants because they will generate too much electricity for the system to be able to store the excess. But if your property is capable of generating an excess of electricity surely you might as well split water and generate hydrogen with it? Some of that could be compressed into tanks and some could be sent into the methane gas supply network.

But you are not allowed to treat this as revenue expenditure are you? It's treated as capital expenditure and you've got to raise that from somewhere. As separate thread on this forum says that some lenders are now treating BTL borrowings as affecting your credit status even if the borrowings are in a separate limited company. So where does the government think all the money to finance renewables is going to come from?

How about allowing you to offset this expenditure as revenue expenditure? For those of us who still have them, how about allowing us to invest our pensions directly in renewables/sustainable BTL? For those of us old enough to be worrying about inheritance tax, how about a tax credit against our IHT bill for investment in renewables?

Jessie Jones View Profile

9:13 AM, 18th June 2022, About 2 months ago

I don't see how any of us can make any energy saving improvements whilst there is so much uncertainty.
We don't know how the replacement to EPC's will be calculated. We don't know if there will be any grants available. We don't know if there will be an expenditure cap, and if there is, what the qualifying dates will be. We don't know which measures will count towards any such cap. We don't know which measures will be considered as a revenue expense, and which will be a capital expense.
Too many unknowns at the moment, and the consequence is that we do nothing !

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