In 2015 the government announced they were going to make changes to the way landlords can offset their mortgage payments against their personal tax returns. This can be a killer to many landlords who own residential properties. Putting them into a higher tax bracket and causing them to lose money on their investments.

Research has shown that many buy to let landlords do not understand fully how this affects them, and some are not even aware of it, putting them in danger of them losing money on their investment properties.

What does the change to section 24 look like

Previously, landlords could offset 100% of their mortgage costs as a tax deductible expense, and could offset a percentage for wear and tear as an on going expense.

Since the change, which was put into action in 2017, landlords can only offset 75% of their mortgage costs at the full rate they’ve been used to and will pay 20% basic rate on the remaining 25%. This will increase yearly by 25% until you are unable offset 100% of the mortgage at the full rate.

Wear and tear can no longer be generalised to 10%. Any repair and maintenance costs which are incurred need to be fully documented and the total per annum can be deducted as costs. This, in most cases, means your tax bill will increase even further as 10% was quite favourable.

What can landlords do to overcome it.

Many landlords are getting around this by putting their properties into a limited company, this means the all costs associated to the properties are classed as business costs and are able to be deducted.

The company will pay 19% corporation tax on its net profit, which looks like you are paying less tax in comparison. However, although you might be paying less tax, the running of a company costs money, you will have higher accountancy fees etc,

Moving the property into a limited company comes additional costs too, you will need to pay stamp duty and capital gains tax on the property too.

It’s really important to stress here that you need to speak to an accountant who is either specialised as a property tax accountant, as some cases can be extremely complex. Every landlord has a different circumstance so there is no “one size fits all” approach to this.

How can Cosy Accommodation help you?

If this sounds like too much hard work, then the simplest option is to work with us. The service we provide to our clients classes your property as a furnished holiday let, this exempts you from section 24, meaning you can be left with more money and most importantly less stress.