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.

Need Tax Planning Support for Your Bath Rental Portfolio?

Understanding how tax changes affect your property investment is crucial. While we can't provide tax advice, our property management services help Bath landlords maintain compliant, well-documented rental portfolios that make tax reporting straightforward.

Considering whether to continue as a landlord? Read our guide on deciding whether to sell your rental property.

Book a free rental valuation to discuss your property strategy, or contact us for advice on managing your Bath rental portfolio.

‍