Budget Round-Up for Landlords

letting agent southend on sea

Restricting loan interest relief for buy-to-let landlords

The government will restrict the amount of income tax relief landlords can achieve on residential property finance costs to the basic 20% rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in as follows:

  • In 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • In 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • From 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

This restriction will not apply to landlords of furnished holiday lets.

Corporate landlords will not be affected, this applies to individuals only.

Additional changes to property taxation

From April 2016 the government will:

  • Replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. However, a 12-week consultation has been launched by HMRC into the scrapping of the wear and tear allowance announced in the summer Budget. Comments close on October 9, with a response document to be published later this year and draft legislation published in advance of the Finance Bill 2016.
  • Publish the consultation, which can be found here
  • Increase the level of Rent-a-Room relief from £4,250 to £7,500 per annum which is good news for homeowners letting rooms to lodgers.

Insurance

Insurance premium tax is to increase from 6% to 9.5% this November and also the cost of Landlords insurance is set to increase by 3.5%.

The Benefits Cap and Local Housing Allowance

The £26,000 cap on benefits has been reduced to £23,000 in London and £20,000 elsewhere – which could have an impact on landlords. Local Housing Allowance (LHA) will also be frozen for four years — though there will be “provision for high rent areas” for LHA, which we assume means London. Also, 18-21 year olds are now no longer automatically entitled to housing benefit.

Inheritance Tax

From 2017, there will be a new £175,000 allowance on homes left to children or grandchildren on top of the existing allowance allowing £1 million to be passed on tax-free.

lettings agent southend on sea - crystal horwood

Crystal joined Pace in 2007 and was appointed to her current role of Managing Director in 2010, heading up the company founded by her father in 1994.

She is responsible for the daily operations of the business, whilst also ensuring the company is financially sound, has strategic direction and is planning for future growth.

Crystal takes a thoughtful and considered approach to all that she does, transferring her determination to deliver implicit care, attention and professionalism to every member of her team.

Pace employ 20 full time staff. Meet the key team members here.