Submitted by
Sestini & Co | on Fri, 02/12/2016 - 12:35 | In
Buy to Let,
Letting Landlords should prepare themselves for the change in treatment of property taxation and, in particular, mortgage interest relief.
Finance cost claims reduced
As announced in the summer budget and emphasised in the Autumn Statement, the government will now restrict the relief on finance costs that individual landlords of residential property can get to the basic rate of tax, with a phased introduction from April 2017, with it fully operational from 2020.
This includes elements such as mortgage interest and interest on cost of purchasing furnishings.
From 2017 25% of the mortgage interest tax relief will be at the basic rate, this will increase by 25% a year until 2020 when tax relief on the full amount of mortgage interest will only be available at basic rate.
Wear and tear
Tax relief for wear and tear is also being reduced from April 2016.
Under the current system landlords of furnished or unfurnished lets can deduct around 10% of rental income as wear and tear.
The new system will mean landlords can only deduct actual costs spent on replacing furnishings, appliances, kitchenware and other items such as carpets and curtains.
Furnished holiday lets will not be affected.
Significant stamp duty increases
The chancellor also announced an additional stamp duty charge in the Autumn Statement: from April 2016 there will be a 3% surcharge on stamp duty on buy to let properties and second homes.
Landlords with property worth around the national average will notice a dramatic difference in stamp duty with the tax due on a £180,000 property leaping from £1,100 to £6,500 and on a £260,000 property spiking from £3,000 to £10,800.
| House Price |
Pre Budget SDLT payable |
Post Budget SDLT payable |
Difference |
| 120,000 |
0 |
3,600 |
3,600 |
| 180,000 |
1,100 |
6,500 |
5,400 |
| 260,000 |
3,000 |
10,800 |
7,800 |
| 600,000 |
20,000 |
38,000 |
18,000 |
| 1,000,000 |
43,750 |
73,750 |
30,000 |
The chancellor estimates this measure will raise an additional £1billion in tax by 2020.
There will also be a consultation on changes to the Stamp Duty Land Tax (SDLT) filing and payment process including a reduction in the filing and payment window from 30 days to 14 days.
Capital Gains Tax claw back
Perhaps just as problematic for landlords is the announcement that from April 2019 Capital Gains Tax due on residential property will be due within a month rather than by the end of the tax year, which was the previous position. CGT due will be payable within 30 days of completion of disposal of a residential property.
Contact us
This is a complex area and we’re on hand to answer any queries, whether you’re an individual landlord in the UK, have a property overseas which you let, or are a trustee for a property that’s held in a trust.
If you’d like to check the impact of the changes on your business or personal finances, call us on 01761 241 861 or email us today. We will be pleased to advise you or to invite you into our offices in Paulton, near Bristol and Bath, for a consultation.
