Property

What Is Section 24? ‘Tenant Tax’

For as long as I can remember, investing in the UK property market has been very simple and fair. But with the advent of the new Government tax regulations known as Section 24;  this has all come to an abrupt and rather bitter end for the average middle class investor.


Ordinary people who saved their money to invest in property over their lifetime, now have a very serious problem on their hands. Even though they played by the rules and acted lawfully accumulating their investment property portfolio, the Government has implemented a draconian law which in effect, steals this wealth from the middle class.


As usual, the Government is only penalizing private individuals who collect rent from their properties, but not companies who collect rent from their properties. This will no doubt come as no surprise to many of you reading this, as it’s always the middle class that gets taxed the heaviest, while the corporations get left alone to some extent.


Because Section 24 is quite intricate at this time of writing, rather than going into the complexities of this law, I’m going to simply break it down into an easy-to-understand format, effective from 2021. 


Before Section 24   After Section 24   
Mortgage Interest IS Deductible from tax Mortgage Interest NOT Deductible from tax
Only taxed on the PROFIT you make Taxed on the FULL rental income 
Taxed Fairly (against profit)   Taxed Unfairly (against personal income)
No change to your tax bracket   Will move many into a HIGHER tax bracket
Landlords can make a small PROFIT Landlords can make a large LOSS


Here’s An Example Of How The Numbers Look:

For simple math, let’s say you’re a higher rate taxpayer and purchase a Buy To Let property in 2016 worth £200,000 with a mortgage of £150,000 on a 4% interest rate. The mortgage interest repayment is £6,000 per year.


The house earns £15,000 of rental income. 


In 2021 your mortgage interest repayments are still at £6,000 but your interest relief may have now dropped to 0%, meaning a total taxable profit this year of the full £15,000 of the rental income and a substantial increase from before the new law came in (£9,000 increase!)


In simple terms, you are now paying tax on £6,000 MORE INCOME.


Depending on which tax bracket you’re in, you can end up paying 40%-45% tax on this £15,000, meaning:

£6,000 tax @ 40%  = £2,400


WHY?

Because they know that if they do, the majority of people may think twice before booking onto their expensive training programs. This is the reason why you’re not hearing much about this bad news, because many trainers who make their wealth simply from property training are trying to keep this hush-hush.

 

If you invest into property the way people have been for the last few decades, you’re not going to make much money, you’re actually more likely to risk losing money.

 

This is why this book is so timely and important right now. Because it’s being written for those of you who have not yet invested into property, or if you have, you only have one or two properties, so it’s not too late for you to adapt. And if you have more than two properties , I recommend you ask your accountant for advice on setting up a Limited company structure.

 

That’s why this system I’m going to teach you, is going to give you the knowledge required to escape this trap and create financial freedom through property. If it worked for me, it can work for you too, and there’s nothing the Government can do about it because you’re playing by their own game and WINNING.

 

Finally, if you’re reading any other property investment books at present, check that they were published from 2017 onwards, or if prior to this, that they have been updated with the new Section 24 tax law changes. Otherwise, the out of date advice you follow could cause you financial hardship from the new tax changes.



I take a deep dive into Section 24 in my book, Property Cashflow and you can find it HERE


Until next time, be great.