In line with the recent tax changes to property lettings, we’ve posted a detailed review on our resources page. Here’s an at-a-view glance about what you need to know…
Understanding the new rules
The recent tax changes to property lettings apply to buy-to-let landlords in the UK and their residential properties.
The change causing the most grief is the restriction placed on future interest relief, which is being phased in from April 2017. It means many landlords will no longer be able to deduct all of their finance costs from their property income. This will be particularly onerous for higher-rate tax payers.
Property repairs and renewals
The old distinction between furnished and unfurnished lettings disappeared on 6th April 2016, and the much claimed 10% wear and tear allowance has gone.
Additional Stamp Duty Land Tax (SDLT) and Land and Building Transaction Tax (LBTT)
A new higher rate of SDLT and LBTT came into force on additional residential properties bought on and after 1st April 2016. This change has also inconvenienced buyers and sellers of properties who have no intention of letting their new property. A purchaser buying a new main residence, whose sale of their previous main residence is delayed, will pay the higher rates of SDLT as they own two properties. They can, however, get a refund for the extra SDLT rate if they sell their previous main residence within three years. This introduces a new cash-flow implication to what would seem to be a quite legitimate purchase and sale of family homes.
Capital Gains Tax (CGT) rates
From 6th April 2016 rates have fallen. Unfortunately, the fall does not apply to gains on residential properties.
Right to rent checks
Buy-to-let landlords need to consider the introduction of right to rent checks. These make it an offence for a landlord to allow a person who does not have a right to rent, to occupy premises such as let properties. If you get it wrong, there may be fines of up to £3,000.
Just so you know, in Wales, Scotland and Northern Ireland there are new landlord registration requirements.
So, are there any upsides?
Property investment companies have become more attractive as the finance cost restriction doesn’t apply to them. Corporation tax rates are lower than personal tax rates. There are the usual caveats about the tax implications of extracting money from a limited company, but it’s an interesting route that merits consideration.
Commercial property is governed by different tax rules for SDLT, lower CGT rates, and there are no restrictions for finance costs.
If you’re thinking about dipping your toe into the buy-to-let pond, there’s a lot to think about. And if you’re a landlord with a portfolio, there’s probably even more to consider. For any further information or advice, please contact us.
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