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Let’s talk about TAX, baby

Thursday 30 November 2017

There are now just 60 days left until everyone has to file their 2016/17 tax returns - and it’s the first time we’ll see the impact of the new Section 24 rules - forcing up the amount of tax landlords have to pay based on income rather than profit.

In April of this year, the reduction of tax relief on mortgage payments went from 100% to 75% of mortgage interest payments. Relief will fall again to 50% in April 2018, then by a further 25% in 2019 before being eliminated the following year.
As a result an estimated 440,000 lower rate taxpayers will be pushed into a higher tax bracket this year alone - with over 8m thought to be affected by the time the rollout completes.

So here at Simple, we thought it was worth starting to talk about tax 60 days early...

Section 24 is clearly something that’s worrying landlords. In a recent survey, we found that landlords consider the changes to tax relief as the biggest influence on their investment strategy - with a quarter rating it above changes to Capital Gains Tax and increased stamp duty. And one in two landlords have already changed their investment plans based on the changes.

Carl Agar, MD of Big Red House, says: “Section 24 may have started fairly gently, but highly financed landlords are really going to start feeling the pinch over the next four years. We’ve already seen landlords leave the sector as a result - or at the very least start formulating their exit plans.

“But if you’re a landlord in the high rate tax bracket and you are in this for the long haul, then there are approaches that can help combat those tax changes. If you’re lucky you may pay no more tax at the end of the four year Section 24 rollout than you do today.”

One route landlords have taken to avoid or minimise the impact of Section 24 is to go incorporated - but it may not always be the right strategy.

Tony Gimple from Less Tax for Landlords, adds: "Rather than incorporating in what we often see as a knee-jerk reaction to Section 24 – take the time to fully understand the best legal structure for your portfolio given your personal situation.

“I know many landlords who feel like they’ve got a big ‘Kick Me’ sticker on their backs. And I don’t blame them. But I actually think there’s an opportunity here for savvy landlords to make highly sustainable profits by running professional property businesses.
“Governments everywhere are basically businesses just like yours. And the way they turn a profit is tax. And they need successful individuals and organisations to be making money in order to be paying them that tax.”

According to both Carl and Tony, the trick is going to be in understanding the new rules, getting to grips with what the government is trying to achieve and what lenders want - and seeing yourself as a business first, and a landlord second.

Alex Huntley, Head of Operations at Simple Landlords Insurance, says: “There’s a lot of doom and gloom around Section 24, so it’s heartening to hear experts like Carl and Tony talking about how to manage it, mitigate it, and even make the most of it.

“It’s an attitude which we’ve increasingly seen from landlords as they get to grips with the changes in the sector. In fact less than 10% of all landlords we talked to intended to reduce the size of their portfolios as a result of the revised tax regime. 4.4% of those owning at least two properties actually intended to invest, and almost two thirds (63%) of this group said the changes had had no effect on their investment plans.”

Find out more about how YOU could deal with Section 24:

  •  11 ways landlords can combat section 24 tax changes - A blog from Simple expert Carl

  • Agar Section 24 - Death of the Accidental Landlord, or a blessing in disguise? A blog from Simple expert Tony Gimple

  •  Tax, lending, and how to grow in today’s market - A blog from Simple expert Tony Gimple

  •  The Simple Guide to Section 24


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