Landlords and tax and the budget.

Tax 2

Tax. Probably not your favourite subject but a very topical one. I’m very grateful to one of our leading local landlords Carl Bedward who has just written a summary of the some of the most important recent changes in tax rules for landlords.

I’ve copy and pasted the main part of what Carl has written below. With apologies to Carl, I’ve had to cut some parts out as he puts forward some very interesting but quite strong opinions on the changes and as this a council blog – I have to be very careful about keeping neutral.

Please don’t rely on this blog for definitive advice on legal or financial matters as we don’t claim to be qualified, (please do your own research if necessary) – but Carl gives an excellent starting point this subject. A longer version of this article should appear in a landlord magazine that we are hoping to put out in April.

Oliver

The Budget & Buy to let

One policy coming out of the budget is the elimination of mortgage interest rate relief over the next 4 years. At present landlords can deduct mortgage interest from their rental income before they calculate profit on which they pay tax. From 2017, the government are starting to reduce the amount of interest you will be able to offset against rental income for higher rate tax payers.

The National Landlords Association believes the new policy could push 150,000 landlords into higher tax brackets.

An example of this would be

Earnings from job / business etc £ 40,000

Mortgage interest £ 13,000

Net rental income £ 7,000

Previously, their annual income would have been considered as £47,000 keeping them below the higher rate tax bracket after personal allowances are deducted. Under the new law their income is over £50,000 which could mean that they have not only become higher rate tax payers but also they would gradually lose their entire child benefit should they be receiving any.

The above couples with NOT ONE BUT THREE other changes will impact heavily on landlords.

The first being the abolition of the 10% wear and tear allowance for furnished properties, (you can now only claim for the actual items that you replace and not 10% across the board)

The second is the 3% surcharge in stamp duty for buy to let / second homes which are in ADDITION to the existing stamp duty payable.

This applies to all properties purchased for more than £40,000.

However, the 3% duty is applied from £0 upwards not from £40,000.

The first column here shows what someone buying their own home will pay, the second column, what someone buying a buy to let, or second home will pay.

Property value

Standard rate of stamp duty

Buy to let / second home rate April 2016

Up to £125,000

0%

3%

£125,000 to £250,000

2%

5%

£250,00 to £925,000

5%

8%

£925,000 to £1.5 million

10%

13%

Over £1.5 million

12%

15%

The third is that landlords will be required to pay their capital gains bill within 30 days of selling a property rather than at the end of the tax year. This could cause issues for many landlords looking to exit the market in the light of the above changes.

 

 

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