What the 2015 Summer Budget means for Residential Landlords
Penny Bowen from Shaw Gibbs has put together an interesting article on the recent changes in the latest budget and how they affect landlords http://www.shawgibbs.com/
There were three announcements in the Summer Budget affecting owners of buy to let (BTL) property. None of these has been brought into law yet so the finer details are uncertain. This is what has been announced so far.
Reform of the 10% wear and tear allowance from April 2016
The government is changing the tax relief available to landlords of residential property who incur costs in improving and maintaining rental property. The 10% Wear and Tear Allowance, which has been available only to owners of properties let fully furnished, will be replaced with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.
Capital allowances will continue to apply for landlords of furnished holiday lets (FHLs). It looks as though there is some good news here. The new relief seems to be available to owners of partly as well as fully furnished properties, allowing those who partly furnish a property (but don’t provide sufficient items to count as “fully furnished”) to benefit from tax relief on replacements which they are unable to do presently.
Restricting finance cost relief for landlords
The government will restrict the relief on finance costs that individual landlords of residential property can get to the basic rate of tax. This measure is intended to reduce the tax relief landlords with larger incomes receive on mortgage interest payments, from 40p or 45p in the £1 to 20p in the £1. The restriction will be phased in over 4 years, starting from April 2017, it is said so that individual landlords are not treated differently based on the rate of income tax that they pay.
We’ll be watching to see what the legislation brings on this one. At first glance for couples – and families, perhaps – who are in a position to do so, there may be a tax planning opportunity here. If one of you is a basic rate taxpayer and the other pays tax at the higher or additional rate, the ownership of the property and the associated income tax liability could be transferred into the hands of the basic rate taxpayer, thereby saving the family tax.
Interestingly the restriction will be confined to individuals – companies that own properties are not affected.
Finally some really good news! Increasing the level of the Rent-a-Room relief
The government will increase the level of Rent-a-Room relief from £4,250 to £7,500 from April 2016.
The value of this relief has been frozen since 1997, so this increase is welcome. It will allow individuals who rent a room in their main residence to do so tax free on income up to £7,500, saving a basic rate taxpayer up to £650 and a higher rate taxpayer up to £1,300 per year.