Investment and Second Properties

22nd February 2016

Wear and Tear allowance/renewals

The government has released details of the new tax allowance for landlords who furnish their residential properties. It replaces the old wear and tear allowance, but how does it differ and how should you plan for its introduction?

Unlike the wear and tear allowance, which only applies to fully furnished property, the new tax deduction can be claimed by any landlord who includes one or more items of furniture or equipment in a property. It will apply to any item which doesn’t become part of the structure of the building. HMRC says it will issue detailed guidance on this, presumably by April 2016. This should, for example, confirm that the renewals allowance will apply to free-standing kitchen units, but not fitted ones. However, a tax deduction for replacement fitted units should be claimable as a repair cost under the normal rules for working out rental profit.

In April 2016 the wear and tear allowance for landlords who let fully furnished residential property will be abolished. Instead all landlords who provide any amount of furniture or equipment will be entitled to claim a tax deduction for the cost. Maximise your tax deductions by leaving purchases until April 2016.

Stamp duty land tax (SDLT)

A new SDLT surcharge aimed at those looking to purchase buy-to-let properties and second homes will apply to purchases on or after 1 April 2016. The new charge is an additional 3% on top of normal SDLT rates.

SDLT is set at 0% for the first £125,000 of the purchase price. However, where the new charge applies, only purchases up to £40,000 will be at 0%. Where the price is greater the charge will be 3% on the first £125,000 and thereafter 3% above the usual SDLT rates Accelerated CGT.

The following is a table of Stamp Duty Land Tax rates which will apply to purchases of second and subsequent residential properties from 1 April 2016:

 

 


Purchase price
£


Rate
%


0 - 40,000


0


40001 - 125,000


3


125,001 - 250,000


5


250,001 - 925,000


8


925,001 - 1,500,000


13


1,500,001 and over


15 will apply to purchases on or after 1 April 2016.

Future proposed changes

Over a period of four years starting on 6 April 2017 higher rate tax relief for loan interest and associated finance costs on mortgages used to purchase buy-to-let residential property will be phased out.  This means that from 6 April 2020 the maximum rate of tax relief on these costs will be at the basic rate of tax.

Finance costs are currently given as a deduction from property income and this will change to a basic rate tax reduction.  The income tax on property profits and any other income sources will be calculated and then tax liability is reduced by an amount calculated by reference to the finance costs at 20%.

Because the way taxable income is calculated it may affect other allowances and benefits for example the high income child benefit charge or tax credits.

We will be providing further information to those of our clients who have buy-to-let property but should you have any questions in the meanwhile please do not hesitate to contact Diane or Tim on 01249 712074.

Accelerated Capital Gains Tax (CGT)

It is proposed  that from 6 April 2019 anyone who makes a gain from selling properties not used as their home will have to pay an amount on account of their capital gains tax bill within 30 days of completion.