There are multiple cases in which we find the landlords confused about section 24. This is also known as the tenant tax. This basic guide will help you understand section 24 in a better way. Section 24 was introduced in April 2017 by the Government. If we explain in simple words, the right of deducting the mortgage and agreement fees is reduced due to section 24 which was happening before in the dealing of rental income.
Because of this change in tenant tax, landlords tend to face higher taxes and pay more taxes than ever. However, before we delve into further discussion, we need to have a look at the points of discussion in this article:
- Reason for Introducing Section 24
- Section 24 – How does it Work?
- How are Landlords Affected
- The Bottom Line
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Reason for Introducing Section 24:
The rapid growth of the private rental sector is one of the major reasons why section 24 was introduced. There are certain reasons involved and some of them are discussed below as well:
- To slow down the pace and the moving tendency was a major purpose.
- Due to the foreseeable property bubble danger in 2015, the safer ways were taken because if the property bubble burst out this could cause serious damage to the economy of the UK.
- Ensure to remove the less professional landlords from the field by making hard rules to earn profit by letting the property.
- To boost the tenants’ stability in the market.
- Making it easy for first-time buyers to gain confidence in order to foothold for the first time in the ladder of property letting.
- More options of properties will be in the market for making good purchase options.
Moreover, several professionals do not really agree with the purpose and rules of section 24 that go against the landlords and lower their pace of profits in the market. There is a view that this is making the landlords hike their rents in order to gain more and more profits to stay in the market and make their rental income stable as well.
For those landlords who are still willing to be in the market, they are bound to try new ways and models to continue being part of the letting property business.
Are you a landlord who is seeking professional help to know more? Give it a try and talk to one of our professionals today.
Section 24 – How Does it Work?
When it comes to the rules and functioning of section 24, the landlords’ rights are put to limit and they can’t offset finance costs at the time tax liability is being calculated.
This makes the landlord pay more tax than before.
This also means that the landlords who are in the higher tax bracket will face the loss of tax relief. This can further push them to the further tax bands as well.
The increase in gross income means that it will affect student loan repayment, child benefits and tax credits etc.
How are Landlords Affected:
Landlords involved in finance costs are super affected by the implementation of the rules that are under section 24. This can include the following types of landlords as well:
- Accidental landlords
- Landlords who are working as an individual in the property business.
- The Landlords who are non-UK Residentials but have to let properties here are affected as well.
The Bottom Line:
Now that you have developed a better understanding of section 24 and how does it work, we can sum up the discussion by saying that there are serious concerns that prove how individuals in the letting property business can be affected by the rules of section 24 and this is further acknowledged by the professionals. However, if you intend to continue in the letting property, others are a chance to gain profits by trying multiple structures.
We hope this article helped to provide fair information to develop a better understanding.
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Disclaimer: This article intends to provide general information based on section 24 and relevant details.