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The implementation of Section 24 has increased tax liabilities for many landlords, prompting a shift towards owning properties through limited companies. This guide explains what Section 24 is, how it impacts individual landlords, and the strategies landlords are using to adapt.
Final Tax Bill: £5,600
Impact: Higher-rate taxpayers see their tax liability increase significantly under Section 24, reducing net rental income.
Landlords in the 40% and 45% tax brackets bear the brunt of Section 24 changes because their tax relief is capped at the basic rate of 20%.
Those with large mortgages face higher taxable profits, even if their real profits remain unchanged.
Landlords with multiple properties often experience compounded tax liabilities, as each property’s rental income is taxed at the higher adjusted rate.
Section 24 has squeezed profit margins for individual landlords, particularly those with high levels of borrowing.
Many landlords have passed on the additional tax burden to tenants by increasing rents, contributing to rising rental prices in the UK.
A growing number of landlords are setting up Special Purpose Vehicles (SPVs) to own their properties, as limited companies are exempt from Section 24.
Some landlords have sold properties or exited the market entirely, reducing rental stock and further driving up rents.
Limited companies can still deduct 100% of mortgage interest as a business expense. This is the most popular strategy for landlords seeking tax efficiency.
Reducing mortgage debt decreases interest payments, which are no longer fully deductible. This strategy is suitable for landlords with surplus cash flow.
Shifting focus to properties with higher rental yields can offset increased tax liabilities.
Transferring ownership to a spouse or partner in a lower tax bracket can reduce overall tax liability.
A tax professional can provide tailored strategies, including using trusts or restructuring portfolios.
Scenario: A landlord with two properties, earning £50,000 annually, faces a £6,000 tax increase due to Section 24.
Solution: The landlord transfers the properties into a limited company, reducing tax liability and retaining profits within the company for reinvestment.
Scenario: A landlord with a high mortgage balance on a single property finds their taxable profits doubled under Section 24.
Solution: The landlord pays off 50% of the mortgage balance, reducing taxable profits and easing the financial burden.
Ans: No, Section 24 applies to all individual landlords with financed properties. Switching to a limited company structure is the only way to bypass it.
Ans :Yes, limited companies can deduct 100% of mortgage interest from their profits.
Ans :This depends on your portfolio size, tax bracket, and long-term goals. Consult a tax advisor to assess the costs and benefits.
Ans :Yes, you may incur stamp duty and capital gains tax liabilities when transferring properties into a company.
Ans: Section 24 has reduced rental stock as some landlords exit the market, leading to higher rents for tenants.
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