Tax Planning for Bath Landlords: Section 24 and Beyond

Tax is often the differencebetween a profitable rental business and a struggling one. The changes since2017—particularly Section 24—have fundamentally altered the economics ofbuy-to-let for many landlords.

Important: This guide providesgeneral information, not tax advice. Always consult a qualified accountantbefore making significant tax decisions.

Understanding Section24

Section 24 changed how mortgageinterest is treated for tax purposes. It's the single biggest tax change to hitlandlords in decades.

What Changed: Before Section24: Deduct all mortgage interest as an expense before calculating taxableprofit. After Section 24: Mortgage interest is no longer deductible. Instead,you receive a 20% tax credit on the interest amount.

Who's Affected: • Basic ratetaxpayers (20%): Largely unaffected • Higher rate taxpayers (40%):Significantly affected • Additional rate taxpayers (45%): Most affected •Landlords pushed into higher bands: Some now pay higher rates even thoughactual cash profit is lower

The Maths: Higher ratetaxpayer, £400,000 property, £300,000 mortgage at 5%, £20,000 rent, £4,000other costs.

Pre-Section 24: Taxable profit£1,000, Tax £400, Net cash £600 Post-Section 24: Taxable profit £16,000, Tax£6,400, Less credit £3,000, Net tax £3,400, Cash position: -£2,400 loss

This landlord is paying £2,400more in tax than they receive in profit.

Mitigation Strategies: • Reduceleverage: Pay down mortgages • Transfer to lower-earning spouse (carefulplanning required—SDLT and CGT may apply) • Incorporate (see Limited Companysection)

Allowable Expenses

Fully Deductible: • Lettingagent fees • Legal fees (for lease renewals, evictions—not purchase or sale) •Accountancy fees • Insurance (landlord insurance, rent guarantee) • Ground rentand service charges • Council tax (during voids) • Utilities (during voids orif included in rent) • Advertising • Safety certificates (gas, electrical, EPC)• Repairs and maintenance • Garden maintenance • Cleaning between tenancies •Property visit mileage (45p/mile first 10,000)

Repairs vs Improvements: Repairs(deductible): Restoring to original condition—replacing broken boiler withsimilar, fixing leaking roof, repainting. Improvements (not immediatelydeductible): Making something better—upgrading boiler, adding extension,fitting substantially better kitchen.

Improvements add to base costfor Capital Gains Tax purposes.

Replacement Relief: You candeduct the cost of replacing furnishings and appliances—but only when youactually replace them, and only the like-for-like cost (not upgrades).

Limited CompanyStructures

70% of new BTL purchases nowuse limited company structures.

How It Helps with Section 24:Section 24 doesn't apply to companies. Companies can still deduct mortgageinterest as a business expense.

Corporation Tax vs Income Tax:Companies pay 19-25% Corporation Tax on profits. Often lower than higher rateincome tax. However, extracting money triggers additional tax (dividends orsalary).

When Incorporation Makes Sense:• New purchases (avoids transfer costs) • Higher rate taxpayers • Retainingprofits to reinvest • Multiple properties • Succession planning

When It May Not Make Sense: •Existing properties (transfer triggers SDLT and potentially CGT) • Basic ratetaxpayers • Needing the income (extraction adds tax) • Mortgage complications(higher rates, stricter criteria)

Transferring ExistingProperties: This triggers SDLT (including 5% surcharge), potential CGT, andrequires new limited company mortgage. Run the numbers carefully.

Capital Gains TaxPlanning

Current CGT Rates (ResidentialProperty): • Basic rate taxpayers: 18% • Higher/additional rate: 24%

Calculating the Gain: Saleprice minus purchase price minus purchase costs (SDLT, legal, survey) minusimprovement costs minus selling costs (agent fees, legal) minus annual CGTexemption (currently £3,000) = Taxable Gain

Strategies: • Principal PrivateResidence Relief: If you lived in the property, portion may be exempt • Spousetransfer before sale: Use both CGT allowances, potentially access lower rateband • Timing: Straddle tax years to use two annual exemptions • Holdoverrelief: In certain circumstances when gifting • Reinvestment: Business AssetDisposal Relief doesn't generally apply to residential letting

Making Tax Digital

From April 2026 (for those withincome over £50,000, then £30,000 from April 2027), landlords must keep digitalrecords and submit quarterly updates to HMRC.

Requirements: • Use compatiblesoftware • Keep digital records of income and expenses • Submit quarterlysummaries • End of year finalisation

Common Tax Mistakes

1. Missing allowable expenses:Keep all receipts, claim everything legitimate 2. Repairs vs improvementsconfusion: Understand the distinction 3. Ignoring Section 24 impact: Model youractual position 4. Poor record keeping: Digital records will become mandatory5. Not using spouse allowances: Legal transfers can reduce overall tax 6.Missing CGT reliefs: Principal residence, letting relief, annual exemption 7.DIY tax returns: Complexity often justifies professional help

When to GetProfessional Help

Landlord tax has becomecomplex. Professional advice is particularly valuable when: • You're a higherrate taxpayer with mortgaged properties • You're considering incorporation •You're planning to sell and want to minimise CGT • You have multiple properties• Your circumstances are changing (retirement, inheritance, divorce) • You'reunsure whether you're claiming all available reliefs

The cost of a good accountantis typically recovered many times over in tax savings and peace of mind.

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