Buy To Let Property Owners - The 2015 Summer Budget Tax Relief Changes that Will Affect You
In a budget that took most by surprise, there were significant changes for the Buy to Let (BTL) market in George Osborne’s first Conservative only budget.
Wear and Tear Allowance Abolished
From 06 April 2016, furnished residential property owners will no longer be able to claim wear and tear allowance on their properties which has been a useful deduction for property owners that was not based on whether any investment had been put into the property.. This allowance will now be replaced with a renewals system where relief is given only when furnishings are replaced in the premises.
Although final details have not been released (and it is unlikely we will have any finality before the Autumn Statement at the earliest) it does look likely from HMRC’s consultation that they will do away with worrying about how much or little a property needs to be furnished and instead will focus on straight relief relating to the replacement of furnishings, irrespective of whether the property is furnished.
If there is any intention to give a rented property a face lift with furnishings being bought, it is potentially sensible to consider deferring the expenditure until after 6 April 2016, as this will have no impact in the wear and tear relief you will be due for the year to 5 April 2016.
Interest Rates Set to Rise
Perhaps the biggest announcement in the budget which affected the BTL market were the restrictions on mortgage interest relief. Currently individual landlords receive tax relief at their highest rate of income tax on all of the interest they pay to finance their letting business.
From April 2017 the amount of interest that will be eligible for tax relief at the higher and additional rate (40% and 45%) will be restricted to the following:
- 75% of the interest paid in 2017/18
- 50% of the interest paid in 2018/19
- 25% of the interest paid in 2019/20
The balance of the interest will be eligible for 20% tax relief in each case and these new rules will only affect 40%/45% tax payers. From 6 April 2020, only basic rate tax relief will be available for interest for higher or additional rate tax payers. Property partnerships and members of Limited Liability Partnerships (‘LLPs’) are also caught by the new rules on a just and reasonable apportionment basis.
On the basis that you need the finance to continue, you may wish to ensure you have the most competitive rates available by remortgaging before the tax relief is reduced. You may also wish to consider the ownership of the property by putting it into joint names in order to maximise basic rate band relief.
Interestingly, there is no comparative restriction on interest deductions for companies which own investment assets. Although careful planning is essential to ensure no undue capital gains tax (CGT) or stamp duty land tax (SDLT) liabilities arise. If the rules currently remain, operating property rental business from companies will look ever more enticing.
For more information please read our Focus on Buy to Let Investors
We strongly advise that your seek advice based on your specific circumstances, for more information please contact a member of our construction and real estate team or your local office contact. Alternatively, please email your enquiry to us.