New tax laws introduced in the 2016 budget, which became effective from April 2016, will have a significant impact on the way landlords manage their property tax affairs. The changes affect a wide range of areas related to rental property, including expenses, stamp duty, interest costs and the treatment of future gains. Key points from the changes include:
- Removal of the ‘wear and tear allowance’, which will no longer be available to individuals (from 6 April 2016) or companies (1 April 2016). This blanket allowance has been replaced with the ability for landlords to claim allowable expenses on specific items – for example, replacing furniture, carpets, etc.
- Increase in stamp duty on properties purchased. An additional 3% is being added as a ‘land tax’ on properties bought after 1 April 2016, and again applies to both individuals and companies. This applies to residential but not commercial properties.
- Interest on loans related to the business. In the past, landlords could offset these costs against the income from property but from April 2016 a basic-rate reduction will replace this, which will be calculated as part of their income tax liability.
- Capital gains reductions, introduced in the 2016 budget will not apply to sales of property, so landlords will not be able to benefit from this change. Principle private residence relief will still apply, however.
These changes might reduce the attractiveness of buy-to-let properties relative to other investments. We will have to see whether landlords try to pass their higher costs on and whether tenants are able to afford further increases in rents, or whether buy-to-let property investment becomes less popular.
If you would like assistance with tax planning, please contact Jackie or Andrew on 01625 524 127