The implications of Section 24 and the Buy-to-Let Market

For many of you in the Buy-to-Let industry, the chances are that you will have heard of Section 24. However, according to research, there are over a million landlords still oblivious to the new tax changes, also known as ‘the Tenant Tax’ and how it would affect them.

What is Section 24 exactly?

The Chancellor of the Exchequer, George Osbourne, in his budget of 2015 unveiled a shocking tax change that would dramatically affect the housing market. Known officially as Section 24 of the Finance (no. 2) Act 2015, it came into effect last year, with plans to phase it in gradually until 2020. The income tax relief that buy-to-let landlords could previously claim on their mortgage payments has changed. This means that landlords can no longer deduct the cost of their mortgage interest from their rental income when calculating how much tax to pay on the profits. They will be taxed on their turnover rather than their profit, which means that for some, all their profits and more will be going to the taxman, leaving them in the red. Instead, they will receive a basic rate reduction as the table below indicates:

Tax Year	Percentage of finance costs deductible from rental income	Percentage of basic rate tax reduction
2017 to 2018	75%	25%
2018 to 2019	50%	50%
2019 to 2020	25%	75%
2020 to 2021	0%	100%

How does this affect landlords?

Landlords could be faced with higher tax bills that they are unable to pay, leading to a rise in repossessions. In turn this could trigger a fall in property prices. Others might decide that it is time to sell their properties and put their money in alternative investments.

Who else is affected?

Tenants will be affected too. To combat the potential losses in profit and cover their costs, landlords could be pushed to increase rents. The amount of available rental properties could decrease as the regulations come into effect fully.

How Sharpes can help

Although the changes have already begun, it’s not too late to do something about it. If you are faced with making a loss by 2020, then you may consider selling some of your properties. Sharpes Auctions do not charge an entry fee to market your property and there are no fees if your property fails to sell. What’s more, if your property does go under the hammer, you can be assured of completion within 28 days. Thereby freeing up your cash for alternative investments. If you have a property to sell why not call us for a chat on 01274 731217 or on 0161 302 9782 or visit www.sharpesauctions.co.uk. Finally, we cover all areas including Accrington, Bacup, Wakefield and Rotherham. Follow us at Sharpes Property Auctions on Facebook Follow us @Sharpesauctions on Twitter