How Section 24 Affects UK Buy-to-Let Landlords
Under Section 24 of the Finance (No. 2) Act 2015, individual residential property landlords are taxed on their gross rental income minus non-finance expenses, with mortgage interest relief restricted to a basic rate 20% tax reduction.
Example Impact on Higher-Rate Taxpayers
Before Section 24, a landlord earning £20,000 rent with £12,000 mortgage interest paid tax only on the £8,000 net profit. Under Section 24, the landlord is taxed on the full £20,000, which can push total earnings into higher tax bands and reduce entitlement to child benefit and personal allowances, offset only by a 20% tax credit (£2,400).
Options for Landlords
- Maximising all allowable non-finance property repairs and management expenses.
- Holding new property acquisitions within a Special Purpose Vehicle (SPV) Limited Company where mortgage finance costs remain deductible as an allowable business expense against Corporation Tax.
- Transferring beneficial interest between spouses where appropriate.