With just over three weeks left to go before the controversial Section 24 changes are brought in, a recent poll by Tenant Referencing UK found that around 1.4m landlords are unaware of the new measures.
Over the past three months, the TR Group has conducted a survey of 1,000 new landlord members to find out what they know about the Section 24 changes, or The Tenant Tax.
Worryingly, 70% of those surveyed were oblivious to any such tax change at all, meaning that around 1.4m landlords are unaware of the drastic effect it is going to have on their rental income and tenancies.
Announced in the Summer Budget 2015, from 6th April 2017, the amount of Income Tax relief landlords can receive on their finance costs will be restricted to the basic rate.
The changes will:
- Affect you if you let residential property as an individual, or in a partnership or trust.
- Change how you receive tax relief for interest and other finance costs.
Finance costs include: mortgage interest; interest on loans to buy furnishings; and fees incurred when taking out or repaying mortgages or loans. No relief will be available for capital repayments of a mortgage or loan.
Landlords will no longer be able to deduct all of their finance costs from their rental income to arrive at their lettings profits. They will instead receive a basic rate reduction from their Income Tax liability for finance costs.
From April, landlords will be able to obtain relief as follows:
- In 2017-18, the deduction from rental income (as is currently allowed) will be cut to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
- In 2018-19, 50% of finance costs and 50% given as a basic rate tax reduction.
- In 2019-20, 25% of finance costs and 75% given as a basic rate tax reduction.
- In 2020-21, all finance costs incurred by a landlord will be given as a basic rate tax reduction.
The following landlords will be unaffected by the Section 24 changes:
- UK resident limited companies
- Non-UK resident companies
- Landlords of furnished holiday lets
The changes are so hard-hitting that many landlords are deciding to either sell their properties or put their rents up. A recent warning claims that rents may rise by as much as 30% as a direct result of the Section 24 changes.
Are you aware of the new tax measures and have you put a plan in place to deal with the effects?
We will keep you up to date with how to keep your lettings business strong and any further changes to buy-to-let at: https://www.justlandlords.co.uk/news/