The 4 Years of section 24

Section 24 was introduced in April 2017 affecting tax relief for landlords. What this means is that landlords will no longer be able to claim mortgage interest, or any other property finance costs against net rental profit. Instead, rental profit will be taxed on the full rental income, not just the profit by 2021, affecting the pockets of the Uk’s landlords.

Year 1

From April 2017 – For the first 75% of your mortgage interest cost, the higher rate tax relief can still be claimed. The remaining 25% will have a basic rate of tax relief.

Year 2

From April 2018 – The first 50% of your mortgage interest cost, the higher rate tax relief can be claimed. The remaining 50% will have a basic rate of tax relief.

Year 3

From April 2019 – A higher rate tax relief can be applied to 25% of your mortgage interest costs. The remaining 75% will be at the basic rate.

Year 4

By April 2021 – Landlords will only be able to claim tax relief at the basic rate level of 20%.

These tax changes could tip some landlords into a higher rate tax bracket, and there could also be some landlords made to pay tax on properties that do not make a profit. For example a landlord making £10,000 of rental income but paying £10,000 in mortgage interest payments could find themselves paying £2,000 – £2,500 in tax (2020/21), as the tax no longer applies to the profit but the entire rental income.

A cold shoulder for self employed mortgages?

At Charther CT we come across many self employed contractors and freelancers who feel cold shouldered by traditional mortgage lenders. Over 50% of people who are self employed feel that they may never be able to even get a mortgage!

Before the recent credit crunch, potential borrowers had the option of a self-cert mortgage, where there was little requirement for proof of earnings. This was a boon for the self employed whose income tended to fluctuate.

Unfortunately for the self employed, self-cert mortgages are no longer on offer, making it increasingly difficult for the self employed to get a mortgage. It is not a lost cause, and with due diligence, people who are self employed can greatly help themselves to obtaining a mortgage.

Steps to a self employed mortgage

  • Keep an eye on your credit rating and try to avoid any arrears, non-payments, ccj’s etc.
  • Minimise any superfluous personal costs, mortgage lenders will look at all your expenses.
  • Make sure you have a qualified accountant to sign off your accounts.
  • Try to have at least 3 years of receipts and accounts for you and your business.
  • Keep/get receipts from HMRC in regard to your accounts/earnings.

Good luck!

For further information on mortgages Council of Mortgage Lenders