A report from Propertymark has laid out the stark and in some cases unforeseen consequence of the Conservative government’s phased removal of mortgage interest rate relief under Section 24 of the Finance (No2) Act 2015.
As most agents and landlords will know, the change was phased in from April 2017 over four years - the aim, according to former Chancellor George Osborne, was “to make the tax system fairer, the government will restrict the amount of Income Tax relief landlords can get on residential property finance costs (such as mortgage interest) to the basic rate of tax. This will ensure that landlords with higher incomes no longer receive the most generous tax treatment.”
However, the well-researched report from Propertymark says that in reality Section 24 has had far wider-ranging consequences.
It says: “The measure pushed some landlords into higher tax bandings and has reduced the financial viability of existing investments, with many reporting breaking even or being in loss-making positions. In some cases, landlords appear able to withstand the financial impact, whereas others have much lower levels of financial resilience.
“As a result of the measure, those in the latter category have seen their living standards compromised, have struggled to pay bills, and in some cases, appear to be in a precarious financial position.”
Propertymark accepts that other factors have exacerbated the situation - the rapid rise in mortgage interest rates and the cost-of-living crisis, plus other tax and regulatory changes.
But in total Section 24 has obliged many landlords to adopt alternative financial strategies, which have sometimes been detrimental to the health of the private rental sector.
Propertymark says: “Incorporation has been popular, but this process and the ongoing administrative requirements necessitated by owning a limited company pose their financial and resource implications. Many landlords’ rent increases had already done so to address not only their increased tax liability but also increased business costs. Implications for tenants already facing a broader cost-of-living crisis are clear.
“Maintenance budgets have also been reduced, often unintentionally because of reduced cash flows. The implications here are stark. For the landlords, there is a risk that a lack of maintenance could impact upon the saleability and rentability of properties. There is also the prospect of small, relatively minor unattended repairs, becoming large and costly repairs in the future, as well as the potential for dangerous conditions to arise.”
The report says that tenants are seeing “suboptimal conditions” with fewer landlords able to afford energy efficiency improvements and in some cases landlords quitting the sector completely - with some of the properties sold off ending up owner-occupied and thus reducing the rental stock, with inevitable consequences for rent levels.
Adding the Section 24 penalties to concerns over legislation, Propertymark says: “Whilst an ageing landlord cohort, concerns about the Renters (Reform) Bill (Watson, 2024), and the availability of better investments (lower risk and higher return) elsewhere are undoubtedly contributing to the mix, Section 24 is a key decision-making factor for buy-to-let landlords.
“In a further blow to the sector, some landlords have reneged on plans to expand their portfolio and others have chosen to relocate their properties to other markets. The net effect is a reduction in properties. It is clear the repercussions of Section 24, including the reduction in supply and increased rents, will resonate throughout the sector for some time.”
You can read the full report here.
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No sh1t Sherlock!
Osbourne = prize idiot! He was warned of the consequences of his actions but as usual with our dumb arse politicians he took no notice! The new set of idiots in government are carrying on in the same vein - within a couple of years the lack of supply of housing to rent will have them bleating about it!!!!!
I wish I could say "pay peanuts, get monkeys". But politicians are not paid peanuts, and we've got a zoo!
I think the formula is quite simple. More rules and regulations = higher rents.
The more you punish landlords, the more they'll have to pass on costs to tenants.
If they bring in rent controls, you're going to need a 50% loan to value position to weather that storm. Not many landlords in that position. I can hear that solitary church bell ringing for the death of the PRS.
They'll hope the Build To Rent sector will save them! I can't see how, unless you think studios smaller than a 1 bed flat, is the future - and rents pumped up to justify services such as onsite gyms and maybe a subsidised coffee shop, are going to justify the painful cut into a low wage packet.
Might work well for students, and maybe young professionals. But the moment you start saying more rooms, it equals more space. The very reason they're going to be so small, it to meet building costs, and make it a viable business. So again, regulations, health and safety, weak pound (materials costs) and high energy costs (stupid green ideas) matched with 'woke' thinking, and a 'woke' education, and you've the perfect storm of stupidity. Our government is already a zoo. They're trying to pull the rest of us down to their level.
And in other news … “the sky is blue”!
Please tell me propertyMark haven't just realised this. FFS.
According to the next article, Connells don’t believe landlords are selling up.🤔
As a responsible landlord, I am deeply affected by the implications of Section 24. The phased removal of mortgage interest rate relief has had severe and unforeseen consequences on my ability to maintain and manage my property effectively.
This report accurately captures the reality many of us are facing. The restriction on Income Tax relief has pushed some landlords, including myself, into higher tax brackets, significantly reducing the financial viability of our investments. This has left me in loss-making positions. The financial strain has compromised my living standards, making it difficult to pay bills and, in some cases, placing us in precarious financial situations. I had no option but to offload my rental properties.
The statement by former Chancellor George Osborne that the aim was “to make the tax system fairer” cannot be further from the truth. The UK is the only country taxing landlords on revenue rather than income, and they even introduced regulatory expenses & the removal of Section 21 etc. on top & expect us to absorb everything. I am appalled that our previous attempt to sign the petition didn’t take off (Reinstate tax relief allowing mortgage interest to be set against rental income).
I have no pension in place and was depending on my rental properties for my retirement. This policy is ruining the livelihoods of landlords in the same position as me & I cant understand why we are not joining forces to do something about it.
Alistair
I have a friend that worked out his position in 2015 when Osborne announced S24. Now it's fair to say that he had a decent sized portfolio but was really running it on extremely low rents. His intention was that he made his living from his job and the properties were his pension. If he had changed nothing then when when S24 was fully implemented he would have been paying £42k tax on his £30k income. Obviously this is an extreme example but when he wrote to his MP he was told there was another person with similar circumstances. Naturally my friend could not allow this outcome so he sold some properties to pay down mortgages and substantially increased rents to market level. Well done Mr Osborne.
You may well be right that the UK is currently the only country to have an S24 type of tax but Ireland tried it twice with disastrous outcomes and I believe I'm correct in saying that New Zealand tried it to before abandoning it as a very bad idea.
According to estate and letting agents I should be letting for much more rent but I like my tenants and we all get on very well. S 24 is an imposition on tenants leading to higher rents. Any other business, shops and car rentals, sets interest against profit. So when necessary I now sell up and I am happy to sell to the tenant for very little then they can have the untaxed profit when they sell. Already the advantages for us both have started to work (non-financial work). Most of the tenants are from other countries so now I can have holidays at no cost.
Phillip I like your plan but may I suggest some serious caution? It doesn't matter if you sold your properties well below market value, HMRC could (if they were to find out) still charge you CGT as though you had sold at full price. Perhaps it would be wise talking to an accountant about this?
Deprivation of assets is a serious crime and is strongly disapproved of by HMRC.
Have Propertymark had their head in the sand for the past 18 months? Tell us something we all don't know.
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