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Section 24 was introduced in 2015 and refers to a change in tax law with effect on the tax relief Landlords can claim.

What is Section 24?

Section 24 is an amendment to UK Tax law which applies to income on residential rental properties. The change means the amount of income tax relief received by landlords is reduced.

Landlords are now only able to claim a tax credit of 20%, based on their mortgage and interest payments. As relief has redeuced it could also mean landlords being pushed in to a higher tax bracket, increasing their tax liability.

Why was it introduced?

The plan was that Section 24 would help to slow the growth of the private rental market. The logic was that it reduces landlord profit on Buy To Let properties and therefore remove some from the market. This in turn should have meant more properties coming on the the market for first time buyers and help to stifle house price increases.

However, it seems it has had the opposite effect and although landlords may be leaving the sector, this has reduced available stock and so pushed up rental costs. Additionally, rents have also increased so that landlords can offset some of the loss due to these tax changes.

So, what effect does Section 24 have?

Costs which can no longer be claimed by Landlords due to the introduction of Section 24 include mortgage interest. Many buy to let property owners opt for interest only to increase the profit margin on monthly rent. This change means mortgage payments cannot be deducted as a 'cost' and tax would be paid on all earnings. The tax rate will depend on whether you are a Standard or Higher rate tax payer. Relief can then be claimed, only up to 20% of the mortgage interest payments made..

Can you get around Section 24?

If you are a Home owner renting a furnished bedroom in your own home, you won't be subject to Section 24. All rent up £7,500.00 per year is tax free under the Rent A Room scheme.

As a Landlord with one or more Buy to let properties, there are ways of getting around Section 24 or offsetting the increased tax burden. These include selling or reducing your portfolio of rental properties, increasing rent, transfer properties in to a Limited Company, Transfer to a lower income partner among other options.

However, you should take independent tax advice before making any decisions as options can be complex. For example, whilst Section 24 won't affect properties in a Limited Company, there are other matters to consider such as Stamp Duty, Capital Gains tax and Corporation tax.

If you are a home owner looking to let out a room on your own house or a Landlord with buy to let, HMO or other properties, please register as a landlord to begin advertising.