Tax Changes to Affect Landlords in 2016.

Following last year’s Budget announced by George Osbourne, we have had to come to terms with the fact that Mortgage Interest Relief for residential landlords will be restricted to the basic income tax of 20%. In addition, landlords will no longer be entitled to a wear and tear allowance for furnished properties.

Under the current rules the full amount of finance costs paid by Landlords are allowed as deduction against rental income.

The new rules will be introduced gradually over a three year period starting from 6 April 2017, and relief will be available as follows:

  • In 2017/18, the deduction from property income will be restricted to 75% of the finance costs incurred, with the remaining 25% being available as a basic rate reduction.
  • In 2018/19, 50% of the finance costs will be given as deduction and the remaining 50% will be given as a basic rate reduction.
  • In 2019/20, 25% of the finance costs will be given as deduction and the remaining 75% will be given as a basic rate reduction.

Wear and Tear Allowances

From April 2016 the formal Wear and Tear Allowance – which allows 10% of rental profits to be written off for wear and tear, even if there has been no such actual expenditure in that particular year – will be replaced with a relief that enables all landlords to deduct the costs they actually incur on replacing furnishings in the property.

HMRC has announced the scope of the changes in a consultation document. One important point is that whereas the old wear and tear tax break applied only to fully-furnished properties, agents and landlords will in future no longer need to decide whether their property is sufficiently furnished to claim the new replacement furniture relief. This is because the new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing.


The Reaction.

There has already been waves of opinions from the nation’s property experts, and they have already predicted that these proposals will ultimately force landlords to increase rents to compensate for this. Additionally, a petition has been set up against the Mortgage Interest Relief, so far, it’s obtained over 50,000 signatures, which is over half way to getting the subject debated in Parliament, the deadline for this is 27th January 2016. To sign the petition follow this link: https://petition.parliament.uk/petitions/104880. Their argument is that individual landlords are already taxed more heavily than other homeowners. The private rented sector is heavily reliant on individual landlords. The planned change is likely to result in higher rents due to landlords looking to offset higher tax liabilities. In some cases, employed individuals own buy to let properties as investments for retirement. The planned restriction would adversely and unfairly affect them.

The Governments’ Response.

By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system. This recognises the benefits to the economy that investment in property can bring but ensures the landlords with the largest incomes will no longer benefit from higher rates of tax relief.

By unifying the treatment of finance costs for all individual landlords, the Government is reducing the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary homebuyers.

Less than 1 in 5 (18%) of individual landlords are expected to pay more tax as a result of this measure. Taking account of the other measures from the Summer Budget, the Office of Budget Responsibility (OBR) have not adjusted their forecast for house prices. The OBR expect the impact on the housing market will be small. Furthermore, this change is being introduced gradually from April 2017 over 4 years. This will give landlords time to plan for and adjust to these changes.


For more information the official policy paper is listed here:

https://www.gov.uk/government/publications/restricting-finance-cost-reli…

Follow Keylet News for the latest on everything property

http://www.keylet.co.uk/news

 

Tax Changes to Affect Landlords 2016

Tax Changes to Affect Landlords 2016

You May Also Enjoy

Estate Agent Talk

Homes for sale in UK has reached highest level in eight years – Thoughts from the Industry

Following on from the data from Zoopla the number of homes available for sale in the UK has reached the highest level in eight years. Here are some thoughts from within the property industry. Guy Gittins, Chief Executive of Foxtons, said: “Despite last week’s announcement of a general election, we’ve not seen a dampening of…
Read More
Rightmove logo
Breaking News

Rightmove’s weekly mortgage tracker

Headlines The average 5-year fixed mortgage rate is now 04%, up from 4.63% a year ago The average 2-year fixed mortgage rate is now 41%, up from 4.97% a year ago The average 85% LTV 5-year fixed mortgage rate is now 01%, up from 4.55% a year ago The average 60% LTV 5-year fixed mortgage…
Read More
Breaking News

Highest supply of homes for sale in eight years will keep house prices in check

Zoopla HPI reveals that the UK is currently experiencing the highest supply of homes for sale in eight years, which will keep house prices in check for the rest of 2024, and also predicts that the 4th July General Election will have less impact on the housing market than during previous election periods. Supply of…
Read More
Breaking News

Breaking Property News – 29/05/24

Daily bite-sized proptech and property news in partnership with Proptech-X. Made Snappy 360 says 61% of letting agents omit property measurements from their listings – which NTSELAT now requires  Letting agents across the UK are proactively responding to an update from the National Trading Standards in Estate & Letting Agency (NTSELAT) regarding recommended “material information”…
Read More
Love or Hate Rightmove
Breaking News

Rightmove story: Home-movers undeterred by election

Majority of home-movers undeterred by election New insight among home-movers shows 95% say the upcoming election will not affect their moving plans Rightmove data from previous elections shows that the market remained steady: In 2015, demand from buyers was consistent leading up to the election, and experienced a post-election boost in June when the annual…
Read More
how to present your property for sale
Estate Agent Talk

6 Property Management Marketing Strategies For And Beyond

Did you know that over 70% of individual renters find their new homes on the­ internet? In our current digital e­ra, a sturdy online existence­ isn’t just an extra for property management firms—it’s a critical need. Nonethele­ss, with innumerable property administrators scrambling for visibility, how might your firm gain promine­nce? The solution is a de­tailed…
Read More