There were a few surprising tax change proposed in the Summer Budget in July 2015 which could impact upon residential landlords. These will have a mixed impact, depending on your circumstances, but will generally be detrimental when they have all come in to force. It remains to be seen whether or not this will dampen down the upward pressure on house prices, to allow more first-time buyers into the property market, which was the Chancellors stated aim!
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Restriction of interest relief
This was the headline grabber for the buy-to-let market. By 2020/21, all financing and interest costs incurred by landlords will be given as a basic rate tax deduction only. There is a phasing out of the higher rate tax relief currently available over the next few tax years, starting from April 2017. It should be noted that this restriction of tax relief on interest to the basic rate of tax will not apply to Furnished Holiday Lets. It will also not apply where properties are owned and let through limited companies. With the rate of Corporation Tax (the tax on Company profits) falling from 20 % to 18% between now and 2020, holding properties in a Limited Company might become more attractive to investors. There are other taxes to be aware of here though, such as Capital Gains Tax and Stamp Duty Land Tax if thinking of transferring existing properties to a Company.
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Wear and Tear Allowance
From 6th April 2016, landlords who let out furnished property will lose the 10% Wear and Tear Allowance which they have become used to claiming as a deduction against their rental income. This will be replaced by a new system whereby landlords can claim the cost of new furnishings only at the time they are replaced. There are currently representations being made by various trade bodies to try to persuade the Chancellor to reverse this change, but he is not usually for turning, unless it relates to VAT on pasties! Landlords of Furnished Holiday Lets will still be able to claim Capital Allowances on equipment they purchase for their FHL business.
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Rent a Room Relief
This relief applies to those who rent out a room in their home. The allowance was set at the rate of £4,250 for many years, but has finally been up-lifted by a large amount to £7,500 per annum with effect from 6th April 2016.
