Section 24 and your buy-to-let
The rule that changed how individual landlords are taxed on mortgage interest. What it does, who it affects, why some landlords pay more tax than their profit suggests, and the questions it raises.
The rule that changed how individual landlords are taxed on mortgage interest. What it does, who it affects, why some landlords pay more tax than their profit suggests, and the questions it raises.
Individual landlords used to deduct mortgage interest from rental income before working out their tax. Under what is usually called Section 24, that deduction was replaced by a tax credit at the basic rate of income tax, phased in over several years.
For basic-rate taxpayers the effect is often small. For higher-rate landlords it can be significant, because the relief they receive is now limited to the basic rate.
Because the interest is no longer deducted before income is calculated, a landlord's taxable income can look higher than their actual profit. That can push someone into a higher tax band, or affect things linked to income, such as child benefit.
Tax rules change, and the right answer depends on individual circumstances. This explains how the rule works and is not tax advice.
It can suit some landlords, but transferring property can bring stamp duty and capital gains tax. It needs specific tax advice.
The restriction is aimed at residential lettings.
Other allowable expenses are treated differently from finance costs, and your accountant can confirm what applies.
The tax position is a question for your accountant. The borrowing is a question for your mortgage broker. How the portfolio fits into a wider plan for retirement and your estate is a question for a financial planner, and your broker can introduce you to one.
This article explains how things work. It does not take your circumstances into account. Your mortgage broker can introduce you to a regulated financial planner at Equity & General where the question needs one.
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