Section 24 Tax only affects private Buy to Let landlords who are higher rate tax-payers. This is because finance costs are no longer regarded as a legitimate business expense for private landlords. Instead, a tax credit of 20% of finance costs is applied to reduce your tax bill.
Section 24 Tax Planning Opportunity #1
If you are a higher rate tax-payer and your spouse isn’t then consider a Partnership or transferring beneficial interest in your property to your spouse. A more complex piece of planning would be to form an LLP and bring your adult children into the business as Members. This can also be useful for business continuity, legacy and inheritance tax planning. None of these strategies require you to change your existing mortgage arrangements.
Section 24 Tax Planning Opportunity #2
Consider the viability of incorporation, i.e. forming a Limited Company and selling your property rental business to that Limited Company in exchange for shares. This will require specialist legal advice on Capital Gains Tax, Stamp Duty and refinancing. However, under the right conditions all of these can be avoided or substantially mitigated. Section 24 Tax does not apply to Limited Companies and there is also far more that can be done in regards to both income tax and inheritance tax planning when you operate your property rental business in a corporate structure. Last but not least, incorporation can re-set the clock for capital gains, meaning that you could sell some of your lesser performing properties just after incorporation and reinvest the proceeds without exposure to Capital Gains Tax.
Section 24 Tax Planning Opportunity #3
Commercial properties and Furnished Holiday Lets are not affected by the Section 24 restrictions on finance cost relief, regardless of whether they are owned personally or within a Limited Company. Therefore, if you have any properties of this type it makes sense to look into increasing the mortgages against them and reducing your mortgages secured against Buy to Let properties held in your own name.