Mitigating Section 24 mortgage interest relief removal

If you personally own a residential buy to let property, you will be impacted by the so-called “section 24” tax changes, which will increase the amount of tax you pay on your rental income. Here at Provestor, we can advise property investors on how to mitigate this change.

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What is section 24?

From April 2021, income tax relief landlords receive for residential property finance costs (mortgages) will be restricted to the basic rate of tax. This means that the amount of income tax paid on rental income will increase as a result, particularly if you become a higher or additional rate tax payer. There a number of strategies available to property investors to mitigate the impact of section 24 - we’ve outlined a few common options below:

Using a deed of trust or partnership

You may be able to use a deed of trust or partnership to transfer rental income to your spouse. This is particularly advantageous if your spouse is has a low income, or pays tax at the basic rate.

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The marginal rates of tax can far exceed the headline income rate. For example, if you earn over £100,000 per year, you will start to lose your personal tax-free allowance and lose your entitlement to free child care. It can therefore be in your best overall interests to sell weaker properties in your portfolio. You may also find that some properties are no longer profitable and may be worth selling.

Paying off mortgages

Whilst paying off a mortgage will not be beneficial from a tax perspective, it will give you the opportunity to increase your monthly income from your properties, which could offset the decrease due to section 24.

Converting properties to furnished holiday lets / serviced accommodation

The section 24 changes only impact residential properties. Therefore, if you are able to convert a property to a holiday let, and achieve the furnished holiday let criteria, you may be able to mitigate the impact of section 24. There are a number of tax advantages related to running a holiday let, including the ability to claim mortgage interest relief. There are specific rules that need to be achieved for a property to be classed as a furnished holiday let, and planning permission may be required.

Incorporating your property portfolio

It may be possible to incorporate your property portfolio into a limited company. If properties are owned by a limited company, mortgage interest relief is still available. Even if it doesn’t make sense to incorporate your existing properties, you can still purchase future properties using a property investment company.

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Arrange a tax consultation today

When it comes to section 24, everyone’s situation is unique, meaning there’s no “one size fits all” solution. That’s why we recommend that property investors impacted by section 24 book a tax consultation with our accountants today. They’ll take the time to understand your position and objectives, and talk you through options to mitigate the impact of this tax change.

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Book a property tax consultation today with our experienced property accountants

Provestor is built for landlords and property investors. We’re here to help ensure your portfolio is working hard and tax-efficiently, and our team will manage all of your day to day tax compliance.

Call us today on 0330 223 4275, start a live chat now or visit our pricing page to book a tax consultation with an accountant.

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