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Landlords Grapple with Dual Challenges: Rising Interest Rates and Section 24


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The confluence of escalating interest rates and the implications of Section 24 restrictions has dealt a double blow to landlords. In the wake of recent interest rate hikes that have begun to impact cash flow, many prominent portfolio landlords who once chose to absorb the additional tax burden stemming from Section 24’s finance cost relief limitations are now facing the undeniable reality that the strain has reached an intolerable threshold.

Strategic Crossroads: Landlords Face Dilemma Amid Interest Rate Surges and Section 24 Impact

While some landlords initially weathered the storm caused by Section 24 limitations on finance cost relief, the recent surge in interest rates has presented a new level of financial adversity. A significant number of established portfolio landlords had opted to endure the extra tax burdens, perhaps underestimating the cumulative effect of these fiscal shifts. However, the tides have turned, and many are now grappling with a challenging question: when do they acknowledge that “enough is enough”?

This pivotal juncture has compelled landlords to abandon their passive stance and confront the unassailable reality. The imperative to take action is palpable; whether they opt for a partial or complete exit from the rental property business or opt for radical shifts in ownership structures, sound and astute tax guidance is imperative.

Selling rental properties in the current climate poses a dilemma, as landlords could potentially encounter substantial Capital Gains Tax liabilities. Making hasty changes to ownership structures without the counsel of professionals could potentially amplify the already daunting financial repercussions. As the old saying goes, “if you think professional advice is expensive, wait until you try using an amateur or advise yourself.”

Navigating the Storm: Landlords Face the Dual Impact of Interest Rate Escalation and Section 24 Realities

Beginning from March 2020, the Bank of England has incrementally raised base rates from a mere 0.1% to an imposing 5.25%. This seismic shift translates into a staggering annual cash flow reduction of £51,500 for every £1,000,000 borrowed by landlords.

Adding to the complexity, this heightened expense can no longer be counterbalanced by rental income. Instead, landlords are met with a marginal tax credit of just £10,300 (20% of the increased finance cost), employing the same illustrative scenario.

While some landlords might have yet to tangibly feel the repercussions due to fixed mortgage interest rates, they are inevitably poised for a jarring transition when these fixed terms eventually expire. This looming reality raises a poignant question: at what juncture will individual landlords concede and declare “enough is enough”?

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