The chancellors recent Autumn Statement included several major rule changes for Buy to Let landlords, these are summarised as follows:
Wear & Tear Allowance – From 6th April 2016
From 6th April 2016 Landlords who provide a furnished property will not be able to claim 10% of the annual rental income as a "Wear & Tear" allowance to cover the cost of furniture and fittings.
Instead, Landlords will be allowed to claim tax relief on the cost of repairs and new furniture and fittings.
It means that Landlords will only receive tax relief on costs incurred rather than a standard allowance, our advice is that if you have repairs to do to your furnished property wait until after 5th April 2016 so you get full tax relief.
Stamp Duty Increase – From 1st April 2016
A higher rate of Stamp Duty Land Tax will start from 1st April 2016. This will be 3% above current rates on buy to let properties and second homes.
This means that if you buy a buy to let property or a second home it will cost 3% more from 1st April 2016.
For example, a Buy To Let Property purchased for £100,000 before 1st April 2016 would have zero stamp duty, after 1st April 2016 the stamp duty cost will be £3,000!
This does not apply to caravans, mobile homes or house boats.
Tax Relief on Mortgage Interest – From April 2017
From April 2017 Landlords will be capped on how much tax relief is available on Mortgage Interest Costs. This will be phased in between April 2017 & April 2020. If you are a 20% tax payer then there will be no change.
In tax year 2017/18 – 25% of Finance Costs will only obtain basic rate tax relief
In tax year 2018/19 - 50% of Finance Costs will only obtain basic rate tax relief
In tax year 2019/20 - 75% of Finance Costs will only obtain basic rate tax relief
In tax year 2020/21 – All finance Costs will only obtain basic rate tax relief
At the moment if your buy to lets earn £20,000 per year and the interest on your mortgage is £13,000 per year, tax is due on your profit of £7,000 meaning £2,800 if you are a 40% tax payer.
Under the new rules in 2020 if your buy to lets earn £20,000 per year and the interest on your mortgage is £13,000 per year, assuming you are a 40% tax payer, tax is due is £20,000 x 40% less £13,000 x 20%, meaning tax due is £5,400, a tax increase of £2,600!
Capital Gains Tax Payment Deadline – From April 2019
From April 2019 a payment on account of Capital Gains Tax due on the sale of any residential property will be due within 30 days of completion.
This means that if you sell your buy to let property or second home, you will pay the Capital Gains Tax straight away rather than waiting until the self-assessment payment deadline of 31st January following the end of the tax year.