Hello readers. Something that has been on the lips of most property investors that I meet is the impact caused by the Section 24 tax changes. This has had a significant impact to many individuals who have either had their profits reduced, sold up or moved properties into a limited company.
Personally, I have seen the impact this has had to many of the investors I work with on a day-to-day basis and now properties are generally purchased through a limited company as the rules to not apply.
It does, however, appear that the majority of those hit by the changes are those who own one or two properties simply as a retirement fund. Arguably, this has hit ‘the little guy’ in an unfair manner.
Announced in the Summer Budget of 2015, and introduced on 6th April 2017, Section 24 is an amendment to UK Tax Law that means landlords will not be able to claim mortgage interest or other property finance as a tax-deductible expense.
The section 24 changes apply to landlords who own property that is in their own name as opposed to a limited company and it is being introduced in four phases, with the final in April this year, where the rule will be fully in force and be replaced by a 20% tax credit.
This has led to a significant change for the private rental market and, as a result, there are now fewer landlords in Britain than at any point in the past seven years. Estate agent Hamptons International has reported that, since 2017, the number of UK landlords has fallen by 222,570; this is an 8% drop.
Interestingly however, the number of private rented homes available has remained broadly the same, despite taking a dip in 2017, stayed broadly the same, and has even seen a slight uptick over the past year.
The suggestion is that landlords with larger portfolios are purchasing the additional stock and the impact has largely been to the ‘accidental’ landlord who may own one or two properties. The report from Hamptons indicates that there has been a general increase in portfolio size.
With the final stage of the Section 24 changes coming into force in under a month, what has the impact been to you? Are you one of the 30% of landlords looking to sell up within the next year or have you changed the structure of your portfolio to reduce the tax liability?
Ultimately, the biggest change has simply been that investors have needed to purchase within a limited company. Arguably, this brings with it some positive points and I would be interested to hear if you think that, despite the issues caused by the Section 24 changes, this has been a good thing.
I regularly help investors maximise their returns and run strategy workshops along with portfolio review sessions. If you would like to discuss this further, then I will be more than happy to help. If you want more information about that, please email me at firstname.lastname@example.org.