Section 24 Tax Reforms

This outstanding piece of work by Dr Rosalind Beck is now the definitive document that exposes the governments attack on tenants and landlords. Section 24 directly harms all tenants security of tenure, All PRS landlords livelihoods, and their ability to supply much needed housing and their ability to increase housing year on year. It is depleting available housing at a time Britain is desperate for more homes to rent and to buy. It proves that it is a dangerous nonsensical hateful and destructive piece of legislation that directly harms everyone renting in the private sector and all private sector landlords.

It must be stopped NOW if chaos is to be avoided.

A little understood part of this section 24 is very significant.

One’s rental income, after allowable expenses, but BEFORE deduction of mortgage interest relief, is now added to all other income. Effectively therefore, if one has, for example an income of £30,000 from investment income or employment or pensions, and perhaps three or four buy to lets, your total income before deduction of interest payments move into the area above £100,000 pa. Tax is then deducted on your total income.

Above 100k, taxes are levied at an effective rate of 60%. That is, 40% income tax plus the progressive loss of personal allowances in the ratio of 50p allowance for each pound of income declared. One then obtains a 20% tax credit.

In short, you pay 60% tax and then get back a 3rd of it

So a lot of relatively small landlords are going to be very badly hit when the full section 24 tax reliefs are lost. In short things are worse than they look.

So, if you borrow for a buy to let, it doesn’t work. If you have cash, other investments seems less risky, less work and less headache.

In my view, this is the beginning of the end of Landlording as a profession.

What do you think?

Dr Ros's report is indeed outstanding.

Residential rented property held directly by individuals is now uniquely heavily taxed. You pay 3% tax on purchase, a higher rate of capital gains tax and tax on mortgage interest.

When you add in the very generous tax breaks available on other investments, such as ISAs and pension funds, there is now an extraordinarily unlevel playing field.

There is also an extraordinarily unlevel tax treatment between owner-occupiers and landlords. Owner-occupiers pay no capital gains tax and no income tax on their 'imputed' rent (i.e. the rental value of their home), this tax having been abolished in 1963. The government's argument that the removal of landlords' interest deduction was levelling the playing field with owner-occupiers because they receive no mortgage interest tax relief is therefore entirely spurious as homeowners are not paying the corresponding income tax.

Reply to the comment left by Rob Thomas at 03/05/2018 - 11:08
Brilliant comment Rob, I love that.

Would you mind posting it on the Section 24 billboard fundraiser page please?

LINK https://www.justgiving.com/crowdfunding/section-24-billboard

Reply to the comment left by Mark Alexander at 03/05/2018 - 15:31
Thanks Mark. Have reposted the comments as you requested. Let's hope the billboard campaign raises the profile of our message.

One could see something like this coming from 2008.

Rates were so,low returns in the bank so poor that many invested in the downturn, when property could be sourced for 70% less than my area currently costs.

The huge shift of money never went unnoticed but for a time the landlord was loved by estate agents, tenants and the government because without them, the market was depressed and would have stayed so.

QI ‘helped’ to raise prices as much free money got poured into the market by anyone capable of signing their names, and the market just about turned over.

Losing council stock but gaining private stock was a godsend - whilst it suited the gvt.

Our gvt is usually very predictable, they watch where the money goes, turn a blind eye when it suits and when the prices get driven up so high they offer their long awaited ‘solutions’, namely ripping off the investor.

Our country is bankrupt has been for a great many years they need to squeeze the pips out of any situation, has always been thus.

As a landlord myself, albeit very very small I don’t have a lot of sympathy for the much larger investor and I’m anticipating two things.

1) investors feeding off other investors very very soon, desperate to sell up in what will be a supply led downturn and

2) for the ltd entities that many have been advised to enter into to be attacked in some form or another, the gvt generally waits a while so this could be within 5-6 but I’m expecting something to change.

Unfortunately our ilk has been duped like a rat trying to escape the titanic, I only hope the small investors like me were similarly well positioned and prepared and it’s the small investor who isn’t likely to set up a ltd company and will be the first to fry when this heats up.

There is an essential place for us landlord in today’s market particularly after all the sell offs but free money, greed, over leveraging etc will eventually flesh out as the incumbent gvt at the time looks to buy the votes of the millenials and I don’t see these ‘escape vehicles’ being long term, as the gvt seeks to screw the lot of us.

Reply to the comment left by B4lamb at 09/10/2018 - 21:42
No, sorry, I do not know what you are trying to say. At the very least, the points you are making are unclear.

Are you suggesting that new landlords have the option of buying in Limited Company whereas established landlords have had the rules of the game they were playing changed retro-actively? If so, then I agree with that.

Are you saying that leveraged landlords are probably doing better than unleveraged landlords? If so, then I would probably agree with that to. That can probably be said for most business sectors though.

I do not agree that BTL lending to Limited Companies is more expensive than for private landlords. It used to be, but that is changing quickly. It is also easier to get a BTL mortgage in a company name than a private name now, since the rules of the game were all changed.

Section 24 is certainly polarising the market, but whether that's a good or a bad thing for the economy in the long term remains to be seen and will always be a hot topic of conversation meanwhile.

Reply to the comment left by B4lamb at 09/10/2018 - 21:42"Why would investors that borrow money to buy a property expect a special goverment privalage or gift that investors who have committed more of their ackrued wealth in properties to let? "
Borrowing money to expand a business thereby growing taxable profit is very common in every business sector; being able to deduct interest costs to generate that extra profit is an established principle, and has been incorporated in GAAP for centuries. The economy would grind to a standstill if businesses couldn't borrow to expand.
So interest costs are not a privelege at all but a legitimate business expense.
Without leverage my own portfolio would 4-5 times smaller, and the taxable profit 2-3 times less, and tax take 4-6 times less (no longer subject to higher rates of income tax). So the Treasury would lose out as well. Leverage is good for the Exchequer.