This might help some of our Clients understand how the new buy-to-let proposals may affect their plans as a landlord.
In last summer’s Budget and in the Autumn Statement, the Chancellor introduced several changes affecting anyone buying or owning a buy-to-let property in the UK. It’s important that landlords understand these changes as they may affect the the profit of buy-to-let portfolios, whether they are small or large.
From 1 April 2016, Stamp Duty Land Tax (SDLT) (3% above the current rates) will be charged on the purchase of additional UK residential properties, which may impact buy to let investors.
So, currently, a property bought for £500,000 would attract an SDLT rate of 5% (£25,000). After 1st April it will be 8% (£40,000) if the purchaser owns more than one UK residential property.
Also, the amount that landlords can claim in tax relief from 2017 on their finance costs is being reduced gradually over 4 years.
Once the new restrictions are in force from the beginning of the 2020/21 tax year, landlords will only be able to claim tax relief at the basic tax rate of 20%, instead of 40% or 45% for those in higher or top rate income tax brackets respectively.
From 2017, the way the tax relief is calculated is going to change. You will owe tax at your personal tax rate on the entire income from a property. From 2020/21, you will only be able to deduct a maximum of 20% from your mortgage interest payments in calculating the amount of tax due. This means that if you pay income tax at the basic rate of 20%, you won’t see any change in the amount you owe. However, higher rate tax payers will be affected.
In addition, the Chancellor has also proposed that, from April 2016, you will only be able to claim for ‘wear and tear’ costs actually incurred on replacing furnishings when calculating taxable profits. This means providing itemised receipts/invoices proving replacement goods actually purchased or repairs you have carried out. Currently, there is an allowance regardless of your actual expenditure.
The effect of tax rules may change again and the impact on you will depend on your own circumstances. Askews can not only provide you with tax advice, but also legal and insurance advice too. So we recommend that you contact us at the earliest opportunity to ensure you adhere to the new rules and maximise your profit, getting the correct allowances appropriate to your individual circumstances.
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