A large number of changes aimed at Landlords of domestic properties (buy to let) were included in the summer budget and their implications have not attracted the press attention they deserve.
For many years owners of Fully Furnished properties have been able to claim “Wear and Tear Relief”. This relatively generous relief was calculated as 10% of the rental income less any expenses paid by the landlord that would normally be paid by the tenant. As from April 2016 this relief will be removed.
Landlords of Fully Furnished properties will instead be allowed a deduction when they actually spend monies on furnishings. The list of allowable expenses has not yet been published and it should be noted that in 2013 landlords of partly furnished properties were stopped from claiming relief on white goods. Will the same now apply to Fully Furnished Properties?
The change that could have the biggest potential impact is the restriction of tax relief on interest in respect of let domestic property. From April 2017 tax relief on interest in such businesses will be restricted so that by 2020, interest will not be an allowable expense in computing the profits of the business. Instead the interest incurred will attract a tax credit at 20%. The impact of this will be to increase the income levels for domestic landlords and potentially many domestic landlords may find themselves incurring tax at 40% on their rental profits whilst only receiving a 20% tax credit.
A small concession was made by the Chancellor to the sector when he announced that “rent a room relief” will increase from £4,250 to £7,500 from April 2016.
The changes made by the Chancellor have made it even more important that domestic landlords seek professional advice to ensure they structure their affairs correctly. If you wish to discuss the contents of this article please contact your local office.