Since the introduction of Section 24 of the Finance Act in 2015, landlords in Cambridge and across the UK have faced significant financial challenges. By removing the ability to deduct mortgage interest from rental income, Section 24 has increased tax liabilities for many landlords, particularly those with buy-to-let properties. However, there is a way to mitigate these impacts: transitioning to serviced accommodation. This flexible and profitable rental model offers landlords a way to increase income, reduce tax burdens, and retain control over their investments. Here’s how serviced accommodation can help landlords overcome Section 24 restrictions.
1. What is Section 24 and How Does it Affect Landlords?
Section 24 phased out the ability for landlords to claim tax relief on mortgage interest payments. Instead, a basic rate tax credit is now applied, which significantly increases the taxable income of higher and additional rate taxpayers.
Key Impacts of Section 24:
Reduced Profits: Higher tax liabilities mean that many landlords’ rental income no longer covers their costs, especially for heavily mortgaged properties.
Pressure on Landlords to Sell: With shrinking margins, some landlords feel forced to exit the market, reducing the availability of rental properties.
Higher Costs for Buy-to-Let Mortgages: Section 24 has made buy-to-let properties less viable for landlords with significant mortgage debt.
For landlords looking to maintain their investments while mitigating these challenges, serviced accommodation offers a compelling solution.
2. How Serviced Accommodation Mitigates Section 24 Restrictions
1. Classification as a Furnished Holiday Let
Serviced accommodation can qualify as a Furnished Holiday Let (FHL), which is treated differently from buy-to-let properties for tax purposes. The key advantages include:
Full Mortgage Interest Deduction: Unlike traditional rentals, FHLs allow landlords to deduct mortgage interest from their taxable income.
Capital Allowances: Landlords can claim allowances on furnishings and equipment, further reducing taxable income.
Favourable Tax Rates: FHL income is treated as business income, which can be taxed more favourably than rental income under Section 24.
2. Increased Income Potential
Serviced accommodation generates significantly higher returns than traditional rentals. By earning more, landlords can offset the increased tax burden imposed by Section 24.
Example: A property earning £1,200 per month as a buy-to-let could generate £150 per night as serviced accommodation. With 70% occupancy, the income could exceed £3,000 per month, more than doubling the original revenue.
3. Flexibility and Control
Unlike buy-to-let leases, serviced accommodation gives landlords the flexibility to adjust pricing, block dates for personal use, and adapt to market demand. This control helps landlords manage cash flow effectively, even under Section 24.
3. Why Cambridge is Ideal for Serviced Accommodation
Cambridge’s unique rental market makes it a prime location for landlords to switch to serviced accommodation. Here’s why:
1. Year-Round Demand
With its world-famous university, thriving tech sector, and rich history, Cambridge attracts a steady stream of tourists, business travellers, and academics.
2. Premium Nightly Rates
Properties in Cambridge’s city centre or near the River Cam can command high nightly rates, maximising returns for landlords.
3. Diverse Tenant Base
From visiting scholars to tourists on city breaks, serviced accommodation caters to a wide range of short-term guests, ensuring consistent occupancy.
4. Tax Advantages for Landlords
With the potential to qualify as an FHL, serviced accommodation allows landlords in Cambridge to retain more of their income and reduce the impact of Section 24.
4. How Cambridge Stays Simplifies the Transition to Serviced Accommodation
Switching to serviced accommodation may seem daunting, but Cambridge Stays makes the process straightforward and stress-free. Here’s how we help landlords overcome Section 24 challenges:
1. Property Assessment
Our experts assess your property to determine its suitability for serviced accommodation and its potential to qualify as a Furnished Holiday Let.
2. Compliance and Tax Guidance
We ensure your property meets all FHL criteria, including letting requirements and furnishing standards. Our team also provides insights into tax-saving opportunities.
3. Full-Service Management
From marketing to guest communication and maintenance, Cambridge Stays handles all aspects of property management, freeing you from day-to-day responsibilities.
4. Dynamic Pricing
Using data-driven strategies, we optimise nightly rates based on demand, seasonality, and local events, ensuring your property generates maximum income.
5. Professional Marketing
We create high-quality listings with professional photography, SEO-optimised descriptions, and targeted advertising to attract high-paying guests.
5. Success Stories: Landlords Thriving Despite Section 24
Case Study 1: Doubling Income with Serviced Accommodation
A landlord with a three-bedroom property near Cambridge University faced shrinking margins due to Section 24. After transitioning to serviced accommodation with Cambridge Stays, their monthly income doubled, and they qualified for significant tax relief as an FHL.
Case Study 2: Overcoming Mortgage Challenges
A landlord with a heavily mortgaged property in central Cambridge struggled to cover costs under the buy-to-let model. By switching to serviced accommodation, they secured higher returns and fully deducted mortgage interest, turning a loss-making property into a profitable investment.
6. Tips for Landlords Navigating Section 24 with Serviced Accommodation
Understand FHL Rules: Ensure your property meets the criteria for Furnished Holiday Let status, including letting at least 105 days per year.
Invest in Quality Furnishings: Well-furnished properties attract higher-paying guests and meet FHL requirements.
Leverage Expert Management: Partnering with Cambridge Stays ensures your property is managed professionally, maximising returns and compliance.
Monitor Market Trends: Adjust pricing and marketing strategies to align with demand patterns, ensuring consistent bookings.
Explore Tax Relief Options: Consult with a tax advisor to fully understand how FHL classification can reduce your tax liability.
Why Partner with Cambridge Stays?
Cambridge Stays is dedicated to helping landlords overcome the challenges of Section 24 by transitioning to serviced accommodation. Our expert team ensures your property achieves its full potential while complying with all legal and tax requirements. With comprehensive management services, we handle the complexities so you can focus on enjoying the rewards.
Transform Your Property and Overcome Section 24 Today
Serviced accommodation offers landlords a way to increase income, reduce tax liabilities, and regain control over their investments. With Cambridge Stays, making the switch is simple, profitable, and stress-free.
Contact Us Today to learn how we can help you overcome Section 24 restrictions and maximise your property’s potential with serviced accommodation.
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