Section 24 is a topic we are regularly asked about, and which has generated a great deal of interest from landlords, property managers, and owners. Here we give you the facts about Section 24 and discuss the likely impact it will have upon the private rental sector. We also discuss whether switching to short-term letting could be a viable alternative for landlords who feel long-term letting is no longer right for them.
In a nutshell, Section 24 will restrict income tax relief for finance costs on residential properties down to the basic rate of income tax (20%). Finance costs associated with residential rental properties include:
We recommend taking a look at the government’s official guidance on Section 24. This includes a full breakdown of when and how Section 24 will be phased in.
If you have a mortgage or loan on a property that’s buy-to-let, then Section 24 will affect you. It applies to:
– Landlords who are UK residents with residential rental properties, regardless of location
– Non-UK resident landlords with residential rentals in the UK
– Partnerships and Trusts with residential rental properties in the UK
Section 24 is being introduced as a four-step phased approach. This began in April 2017, with full implementation taking place by April 2021.
At the time of writing, Stages 1 and 2 have already been implemented, with Stages 3 and 4 remaining.
From April 6th 2017, Stage 1 saw tax relief that can be claimed at the higher-rate applying to the first 75% of finance costs only, with the remaining 25% at the basic rate. Stage 2 came into effect from April 6th 2018. This dropped the higher-rate of tax relief to 50% of finance costs, with the remaining 50% at the basic rate.
Stage 3: From April 6th 2019, the higher-rate tax relief can only be applied to 25% of finance costs. The remaining 75% will be at the basic rate.
Stage 4: By April 2021, landlords will only be able to claim tax relief at the basic rate level of 20%.
If you haven’t already done so, we recommend taking professional financial advice about how Section 24 may impact your business, and how your tax bill could change. For many landlords affected by Section 24, moving into short-term letting could offer a potential alternative, but it’s really important to do your research and find out what’s involved before deciding if it’s right for you.
TravelNest can help you make the switch from long to short-term letting. We are experts in the vacation rental industry and are trusted by thousands of holiday homeowners. We advertise their short-term rental properties on the best booking sites and get them more bookings. We work directly with 30+ channels including Airbnb, Booking.com, Expedia, HomeAway, and TripAdvisor.
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