All You Need to Know About Section 24 Tenant Tax

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If you are a landlord with a buy-to-let property in the UK, then you’ll no doubt have heard about Section 24. Otherwise known as the Tenant Tax, it’s a change to UK tax law that was first announced back in 2015 as part of the Summer Budget.

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.

What is Section 24?

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:

  • Mortgage interest payments
  • Interest on loans to buy furnishings
  • Mortgage arrangement and broker fees incurred when taking out or repaying mortgages or loans
  • Landlords will no longer be able to simply deduct these financial costs from their property’s income. Instead, they’ll receive only the basic rate of reduction from their income tax liability for finance costs.

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.

Who will Section 24 affect?

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

When will Section 24 be introduced?

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%.

Speaking about the changes, our Director of Finance, Laura Calder, said:

The introduction of Section 24 has the potential to change the landscape of the UK’s private rental sector. It's created debate about the benefits of long versus short-term letting, and will drive interest in short-term vacation rentals. TravelNest can provide useful insight to landlords about the pros and cons of the short-term market.

Could short-term letting be right for you?

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.  

As our VP, Marketing Cam Boal comments: 

We’ve spoken to landlords who say that Section 24 is the primary reason for their decision to exit the long-term letting market. We’re having more and more conversations with buy-to-let landlords for whom short-term letting offers a truly viable alternative.” 

We can help

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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