Tax Issues Impacting Buy to Let Properties

The Changes

1. Relief for furniture and fittings

At present, a wear and tear allowance is given at 10% of the net rents received in respect of fully furnished let properties. This will be abolished from 6 April 2016. In its place all landlords of residential property (whether fully furnished or not) will only be able to claim the actual cost of replacing furnishings.

Managing the impact:

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

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

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. 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

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

Managing the impact:

  • Consider whether it is possible to acquire new properties before April 2016
  • Consider incorporation before April 2016

4. Reporting tax on rental income quarterly from April 2018

HMRC are proposing that from April 2018, self-employed people and landlords will have to update HMRC regarding rental income every quarter if this activity is their primary source of income. Even if it’s their secondary home, so long as it is 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 be required 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