The Tenant Tax Act, or Section 24 of the Finance (No.2) Act 2015 as it is otherwise known, has generated much debate within the UK rental market since it was introduced in 2017.
Originally designed to address an advantage buy-to-let landlords previously enjoyed in terms of tax relief on mortgage payments; its impact over just five years has been felt by both tenants and landlords alike.
Now there is an ongoing petition pushing for the reinstatement of these deductions so that landlords can recuperate some costs associated with renting out their properties through tax savings in order to make housing more affordable for all parties involved! Supporting this petition is especially important for millions of people across the country who rent or live in rented accommodation. In this blog, we’ll discuss the ways the legislation has negatively impacted both landlords and tenants - underpinning why reinstatement can bring positive changes for all.
How Section 24 impacts landlords
The Tenant Tax Reform has been a major source of frustration for people across the country. Here are some of the key ways it has impacted landlords:
1. The loss of mortgage relief
Prior to Section 24, landlords enjoyed the benefit of saving on their income taxes by deducting mortgage interest and other expenses like administration fees. Unfortunately, that is no longer available with taxation now applying across all rental incomes earned.
2. Higher tax brackets
Since the introduction of section 24, all the income made from a property is now taxed. In many cases, this means landlords will move from a basic tax rate of 20% to a higher tax rate of 40%.
3. Interest payable on loans to renovate
Section 24 eliminates the ability to deduct finance costs, including loan payments used for renovations and remodelling.
4. Increased admin
The reform has also led to increased administration. Landlords who previously claimed tax relief on their mortgage interest payments now need to calculate and claim tax credit instead. This may require additional time and resources to ensure that tax returns are filed accurately and on time.
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Overall, the Tenant Tax Reform has had a number of negative impacts on landlords. While the reform was designed to increase revenue for the government and make the tax system fairer, it has had the unintended consequence of making it more difficult for some landlords to make a profit from their rental properties.
How Section 24 impacts tenants
It’s not only landlords feeling the effects of Section 24, there has been a major ripple effect for tenants too. Here are some ways the renters have been affected by the change in legislation:
1. Higher Rents
One of the biggest negative impacts of the Tenant Tax Reform on tenants is that it has led to higher rents. Landlords who have been impacted by the reform may choose to increase rents on their properties to help offset the additional costs of the tax changes. This means that tenants may have to pay more for their rental properties, which can make it harder for them to afford the cost of living.
2. Reduced Availability of Rental Properties
Some landlords who have been impacted by the reform may choose to sell their properties or reduce their portfolio of rental properties. This can lead to a reduction in the supply of rental properties in certain areas, which can make it more difficult for tenants to find suitable and affordable accommodation. Currently looking for a property to rent? Find your perfect home with MakeUrMove.
3. Increased Competition for Rental Properties
In some cases, the reduction in the supply of rental properties has led to an increase in competition among tenants for available properties. This can drive up the price of rents even further, making it even harder for tenants to find affordable housing.
4. Reduced property standards
The reduction in profitability resulting from the Tenant Tax Reform could mean landlords simply don’t have the funds to invest in property improvements, which could impact the overall quality of a property.
Landlords and tenants have significantly felt the effects of Section 24 legislation ever since 2017. As a result, there has been an overall 1.2% decrease in privately rented homes across England as well as soaring asking rental prices outside London - which are now more than £400 more expensive than they were reported to be in Q4 2016. While inflation or COVID-19 may play some part in this shift, neither can explain why so many property owners have needed to raise costs or sell their properties – it's safe to say that something deeper within the Act should be addressed soon before further consequences arise from it!
By signing a petition before 10th May 2023, we can work together towards reinstating tax relief so mortgage interest payments will be offset against rental income - like in the past. Paving the way for an improved property market starts with you; join our collective voice and sign today to encourage government debate on this highly important issue!
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