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S24 mortgage interest restrictions – turning up the heat for buy-to-let landlords - news article image

S24 mortgage interest restrictions – turning up the heat for buy-to-let landlords

15 Mar 2021

2 minute read

As we emerge from winter into the warmer climes of spring, many buy-to-let landlords have emerged from the hibernation period to find that they are still the icy grip of Section 24 (S24) mortgage interest restriction changes.

What are the S24 changes?

The S24 tax changes restrict tax relief for finance costs for private landlords with residential properties to the basic rate of Income Tax. Whilst it is commonly known as the “mortgage interest restriction” it goes further in that it applies to all finance costs will be caught. The changes were initially announced in the 2015 Budget and in order to give buy-to-let landlords time to adapt to the removal of finance costs as a tax-allowable expense have been integrated gradually meaning they only have full effect from the 2020/21 tax year. If one were feeling skeptical, the comparison to this form of implementation could be drawn to that of the cooking of a lobster – gradually increasing the heat so that it catches the unaware. 

What does it mean for buy-to-let landlords? 

The impact will have already started to be felt but now it is fully in force, the increased tax burden will now start to hit the pocket. What this means in real terms is that those caught may be paying tax on profits they haven’t made, they may now be pushed into a higher tax band or they may see a reduction in their personal allowance. For anyone in the property rental business, this is a disastrous cost, which will have significant and ongoing implications on their portfolio. 

The impact is aimed at individual landlords and for those that are still operating their rental business in this way would be well advised to consider how they operate their business. 

Can a Limited company combat these changes? 

A common question is whether operating through a corporate structure such as a limited company would be beneficial to combat these changes and it is a good question. The answer in several cases will be yes, however there are a few pitfalls which have oft deterred people from taking this step. Until now. 

Perhaps the lobster metaphor of the ever-increasing heat has some merit in that each year, the mantra of “it is only a bit more than last year” will continue to maintain the status quo. 

However, if you are now reviewing your situation and thinking “how did I get here?” and “what can I do?”. All is not lost - we have a few options available to help guide you through this difficult transition. Keep more of what you’ve earned. 

Contact me to discuss the available options and how you may optimise your returns from your hard-earned portfolio.

S24 mortgage interest restrictions – turning up the heat for buy-to-let landlords - news article image


Phil Dickinson

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