A petition calling for the reversal of Section 24 and reinstatement of interest tax relief for landlords has amassed more than 30,000 signatures, forcing a response from the UK government.
Launched by landlord Simon Foster in December, the petition asks for the government to bring back the ability to set the full amount of mortgage interest against rental income before the tax is calculated, something which was phased out under Section 24 and has led to significantly higher tax bills for already struggling landlords.
While the government ruled out a reversal of the tax changes in its written response, the petition will be considered for debate in Parliament if it reaches 100,000 signatures before the 10 May deadline.
What is Section 24?
Announced back in 2015 and coming into full force in April 2021 after a phased introduction, Section 24 is an amendment to UK tax law that limits the tax relief landlords can claim on their mortgage interest.
Prior to 2017, it was possible for landlords to claim 100% of mortgage interest from their income tax bill. Now, landlords must pay tax on all rental income, with the ability to claim back mortgage interest costs limited to 20%, the basic rate of income tax.
The scrapping of mortgage interest relief has proved highly controversial ever since it was first unveiled by then-chancellor George Osborne, meaning significantly larger tax bills for many landlords and pushing some basic rate taxpayers into higher bands.
Many have dubbed Section 24 the ‘tenant tax’ since it has forced many landlords to sell up, leading to an even greater shortage of rental properties in a market where there is already exceptionally high demand.
Creator of the petition Simon Foster said:
“We want the Government to reinstate the ability of landlords to set the full amount of mortgage interest against rental income, before tax is calculated.
“Like many self-employed business people I am a small, well-established private landlord that is now struggling to make any money from letting properties.
“Unless the ability to offset mortgage interest against rental income is reinstated I will, like many, be forced to sell my properties. This could reduce the amount of properties available on the private rental market.”
After attracting thousands of signatures from landlords across the UK, the government issued a written response to the petition on 17 January 2023 in which it ruled out any such reversal of Section 24:
“The Government recognises that the private rented sector plays an important role in the UK housing market and economy. However, the Government also has a responsibility to make sure that the income tax system is fair. Under the old system, residential landlords got relief on their finance costs (including mortgage interest payments) at their marginal rate of income tax, which meant that higher rate taxpayers got a more generous tax relief than those on lower incomes.
“To address this, and make sure that all residential landlords are treated the same by the income tax system, the Government phased in a set of reforms to restrict finance cost relief to the equivalent of the basic rate of income tax. The reforms mean that all residential landlords will now receive the same amount of relief. It also reduces the disparity in income tax treatment between homeowners and landlords.
“To minimise the impact on landlords who are affected, the Government chose to act in a proportionate and gradual way. It announced this change almost two years before its implementation. The restriction, introduced in April 2017, was phased in over four years to give landlords time to adjust to the changes.”
It stressed that the reforms do not mean tax relief on mortgage interest has been abolished and that landlords are still able to claim an income tax reduction on finance costs equivalent to basic rate tax relief. It also said residential landlords can claim relief at their marginal rate of income tax on any day-to-day costs incurred in letting out a property.
Is Buy-to-Let Still Viable?
Despite the government insisting the tax system is “fair,” many landlords will argue that buy-to-let is just no longer viable, especially in the face of soaring mortgage costs and increased legislation on top of higher taxes.
If you are a landlord and want to speak to one of our property portfolio managers about your current position, please give us a call today – or reach out using our contact form.
Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.