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The dust has settled on the July 2015 Budget, here are the implications.
Policy: The tax allowance for interest-only mortgage payments will be reduced for high rate tax papers to 20% over four years from 2017. This includes any fees related to obtaining mortgages.
Implication: This policy is political and practical. Political in that the Chancellor wants to be seen to be giving landlords a hard time to solidify the Tories’ central positioning, and practical in that they are trying to help first time buyers. The messaging is still confused: at times the Government treats buy-to-let as a business yet with this change it seems to be saying it is personal. Buy-to-let mortgages are still not regulated by the FCA – the left and right hands are not talking to each other.
This will affect those with interest-only mortgages, that much is true. We would advise you to seek the advice of a good accountant if you want to investigate two options:
- Owning your properties in a company. Many of our clients do this and draw income via dividends. However please take advice particularly regarding CGT on disposals.
- Re-defining ownership to use up tax allowances. If one partner has a lower income, it can make sense to put property in their name. We deal with ownership changes constantly with no problems.
Policy: The 10% tax allowance for wear-and-tear in furnished properties is being stopped. Instead landlords must claim for actual costs from April 2016.
Implication: This will help some and hinder others. If you have significant ‘actual costs’ in a year then the new policy is positive. Neither HMRC nor DCLG (who oversee housing) have published any guidance on which costs you can claim for and those you can’t. Our current guess is that the spirit of the law will stay constant – ‘maintenance’ is allowed but ‘improvement’ is not. There is no clear line between the two. In our experience if you are replacing a very tired kitchen with a similar (but modernised) specification that is maintenance but if you are extending and adding floorspace that is improving. As ever, take a good accountant’s advice before submitting your tax return.
Accountants
We are happy to recommend four local firms, in alphabetical order:
- Critchleys, Oxford - Liz Higgins - 01865 261100
- Mercer Lewin, Oxford - Caroline Brown - 01865 724139
- Shaw Gibbs, Oxford - Iain Ferrie - 01865 292200
- Whitley Stimpson – Banbury - Val Buzzard - 01295 270200
