Tax Issues Impacting Buy to Let Properties in Future Years

The Changes

1. Relief for furniture and fittings

Before April 2016, a wear and tear allowance was given at 10% of the net rents received in respect of fully furnished let properties. Now all landlords of residential property (whether fully furnished or not) are only be able to claim the actual cost of replacing furnishings.

Managing the impact:

  • Can you track your refurbishment and repair costs accurately?
  • Could you consider establishing a furniture leasing company or property management company for multiple furnished properties?
  • Can you defer qualifying expenditure until after April 2016?

2. Relief for mortgage/loan interest for Buy To Let investors

Individual landlords currently 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 eligible for tax relief at the higher and additional rate (40% and 45%) was 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.

From 6 April 2020, only basic rate tax relief will be available for interest for higher or additional rate tax payers.

Managing the impact:

  • Review existing mortgages to consider if a remortgage would reduce interest costs
  • Consider the advantages and disadvantages of incorporation

3. Additional SDLT and LBTT from 2016

From 1 April 2016, higher rates of SDLT (LBTT in Scotland) are charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes. The higher rates are 3 percentage points above the current SDLT/LBTT rates.

4. Reporting tax on rental income quarterly from April 2018

HMRC propose that from April 2018 self-employed people and landlords will have to update HMRC every quarter regarding rental income. This is only if this activity is their primary source of income. If it’s their secondary home worth more than £10,000 and the main income is from employment or from a pension, they’ll also have to update regularly.

Managing the impact:

  • Prepare for the impact of the changes as they are introduced

5. Earlier payment of capital gains tax on residential property

From April 2019, a payment on account of any CGT due on the disposal of residential property will have to be made within 30 days of the completion of the disposal.

Managing the impact:

  • Prepare for the impact of the changes as they are introduced