Budget 2016 – How will it affect landlords and the rental sector?
Unlike his earlier autumn statement last year, the March 2016 budget yielded fewer property tax surprises.
The usual overall mix of taking away on the one hand and giving back on the other continues. He’s missed some targets and re-set new ones. ‘Trust me’ he says, as more black economic clouds circle around him and which may or may not affect his chances of higher office. Was this budget just for politics and more importantly how does it affect the property owner?
It was certainly not a good budget for tax avoiders as he confirmed the government’s continued approach to collect more tax wherever it can. And this will include tax on property investors. But looking at it positively we at least know where we stand. We can therefore plan and limit the taxation where possible such as the increased stamp duty for second purchases (re-claimable upon eventual disposal) and the reduction in mortgage interest relief (now being phased in over the next 4 years).
Large scale residential investors may be disappointed that the hoped for exemption from the additional 3% rate for buy-to-let investors has not materialised. In practice this means that larger scale purchases are likely to be taxed at the new commercial rate of 5%. Will this affect the attractions of this sector for institutional investors? Will this compromise the chances of improving housing supply? There is still a growing recognition in an age of decreasing home-ownership, that having the benefits of both income and capital gain from a residential property, is a win-win but only time will tell.
Our advice: if you have or are going to ‘gear’ the purchase using mortgage finance, then it would be wise to seek advice from both an independent IFA and an accountant. Indeed for each and every investor it is now vital to strategise your investment. Please call our Inspired Investment team on 01865 302308 for initial guidance on the latest changes.
Increased stamp duty on second purchases (3% supplement above the current rates – see HMRC helpful calculator https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro
Our view – we have been acting for the investor/purchaser for over 40 years. We will help with negotiation on purchase and instinctively know a ‘good buy’ when we see one. Post new SDLT rules will see more properties available and both developers and vendors still wanting to do a deal. We have several schemes on the investment register at the moment – call us now for details.
Abolition of wear & tear allowance – from April 2016 the old wear & tear allowance goes but the cost of renewing furniture and furnishings will now be fully tax deductible (but not the first purchase of any item).
Our view – and ideal opportunity for landlords to improve the yield and maximise the wow factor of their properties. Landlords letting unfurnished properties (currently have no allowance) will now also benefit and be able to claim the cost of renewing items such carpets and white goods (but not the first purchase). Greater record keeping will be required – another benefit of using an agent we will retain those records for you.
From April 2017 the amount some landlords can claim in tax relief on their finance costs (such as mortgage and interest payments, interest on loans to buy furnishings and fees incurred on taking out and repaying mortgages) is being gradually reduced over 4 years.
Our view – a good time to review how your property portfolio is structured as this amendment applies to individuals – properties held within a company structure are not affected. Therefore a simple restructure may be a better option or perhaps moving a portfolio into a company (but speak to a qualified tax advisor before doing this). The amount of tax is being reduced not removed – so ensure you make the most of the allowances.
Other significant points
SDLT due on the purchase of commercial property is reformed (it was previously uncoupled from residential rates) – the Chancellor declared a 1% increase in the highest rate of SDLT on commercial property. This combined with an increase in duty on certain leases, is expected to raise approximately £2.5bn over the next five years.
There will be a 0.5pc increase to the standard rate of insurance premium tax from 9.5pc to 10pc to help support flood defences, including in Leeds, York, Calder Valley and Cumbria