Tax & The Landlord: Upcoming Changes
It is a time of change for Landlords who are facing not one, but two big changes this April and another fundamental change from 2017/18. Here is a recap of these changes:
Wear and Tear Allowance
From 6 April 2016 Wear and Tear Allowance for furnished lettings will be no more. Instead, Landlords of furnished, part furnished and unfurnished properties can claim for the expenditure they incur when replacing furnishings. For those who let furnished properties and replace very little during the year, this change will no doubt be unwelcome; however for those with unfurnished lettings this is a change for the better as they will now get relief for replacing items such as carpets and white goods.
Stamp Duty Land Tax (SDLT)
From 1 April 2016 a higher stamp duty charge is planned for purchases of additional residential properties, for example, second homes or buy-to-let properties. The higher rate is 3% above the current SDLT rates.
Currently Landlords receive relief for the finance costs incurred in their rental businesses at their marginal tax rate. However, from 2020/21 the relief for such expenditure will be restricted to the basic rate of tax – currently 20%. The restriction will be gradually phased in from 2017/18. This change does not just affect those paying higher rate tax, however. Some people will find that, even though they are currently basic rate taxpayers, when the finance costs can no longer be deducted in calculating the net rents, they may be pushed into higher rate tax; and yet, tax reduced will only be 20% of the finance costs.
There is certainly a lot to consider and Landlords are advised to use the time until the changes take effect, in 2017-18, to ensure they fully understand how they will be affected.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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