The Bank of England has announced it is going to raise interest rates as early as May 2018 in order to tackle inflation levels of over 3.5%, but what does this mean for landlords, especially under the new Income Tax rules under Section 24? In brief, every 0.5% rise in mortgage interest would mean, for a typical interest-only …
Who will Section 24 affect?
Around 83% of all landlords in the PRS (Private Rental Sector) To elaborate, any UK private taxpayer who derives income from a property that is not their main place of residence and makes loan interest payments (mortgage, bridging loan, home improvement loan etc.) for that property. This includes: UK resident individual that lets residential properties in the UK or overseas …
What does it include?
Any and all loan interest repayments on a residential property wholly or partly owned by a private UK taxpayer which is let on a commercial basis (in other words, for a rental amount). So if you rent out a property that has a mortgage (or any other type of loan) secured against the property, and pay your income tax by …
How does your ‘60/40’ plan work?
You commit 40% of the property value to us We commit 60% of all profits from rental income, sale or refinance to you So, for example, your property has been valued at £200,000. You would sell it to us for a 40% less than this (£120,000), for this you would then be contractually entitled to 60% of all profit from …
How am I protected?
It is natural that when entering into any agreement for each party to seek some guarantees from the other. In this case, when you place your property with us, you enter into a ‘Joint Venture’ arrangement with your investment and income contractually protected. This agreement is legally binding, and commits us to distribute income and profits based on full accounts …
What’s in it for me?
In certain cases, by working with property specialists we can ensure you can actually end up better off than before Section 24 came into effect. In most cases, you will receive a slightly lower income than before, but you will keep a positive cashflow which is more secure, less risky and more profitable than if you explored other investment options …
What’s in it for you?
Not much until 2020/21! In truth, a minority share of the profits from your property (starting at 10% and increasing to 40% as Section 24 rolls out from 25% to 100%) The only way we can make this work for the company is to make the product appealing to many landlords, as a minority share of many properties makes …
Why don’t I incorporate and do this myself?
There is nothing stopping you from incorporating and doing this yourself, as you would be subject to the same regulations as we are. However, although the process of incorporation is not a huge burden, the administrative, accounting and legislative overhead in running a limited company is more than many landlords want, and in many cases takes away the whole reason …
When can I expect benefits to manifest?
Thanks to the scaled rollout of the 60/40 plan that is designed to parallel the scaled rollout of Section 24, you will benefit from our service from day 1 (when compared with your current position) You will not actually see this difference immediately, as the impact of increased income tax is not felt until the end of the financial …
Does this change my strategy?
Probably, although this will be usually a change of mindset rather than a material change as if you are successfully renting your property at the moment, there would be no reason to change the strategy for that particular property. Mindset-wise, rather than being a ‘standard’ property investor, you will become an investor in a property company, receiving returns on your …