Clause 24 was added to the Financial Bill 2015 by George Osborne, who was Chancellor of the Exchequer at the time. The clause consists of an amendment restricting the amount of tax relief landlords could claim when letting out residential property.
A tax relief restriction
The amount of tax relief anyone in the business of letting out property can claim has now been restricted by Clause 24. As of the Summer Budget 2015, any tax relief on finance costs has been limited to the basic rate of income tax.
Taxed on turnover, not profit
This means that landlords can no longer claim as much tax relief on their mortgage payments as was previously possible. Effectively, landlords can now be taxed on their turnover rather than their profit.
Why it might mean making a loss
Higher-rate taxpayers whose mortgage interest payments are a considerable proportion of their income are the most affected. It is possible that for some landlords, their rental income will not quite cover their tax bill. Instead of making a profit, they may thereby actually make a loss.
From basic to higher
Even basic area taxpayers can be affected because Clause 24 can mean that they are lifted into the higher rate tax bracket. It is crucial for any landlord to check their position in relation to Clause 24.
The best off will win
Clause 24 only affects those who have finance costs related to their property, i.e. a mortgage. Therefore, those landlords who own their properties outright are not affected.
Clause 24 is crucial and landlords need to be fully aware of its implications to avoid a far higher tax bill than expected, or even a repossession order.