Jul 092015

The second Budget of 2015 has not been particularly kind to those people who buy homes to rent them out to those who need a place to stay.

Starting from 2017, individual landlords of residential property will only be able to claim tax relief on their finance costs at the basic rate. We shall look at these rules in further detail, as well as some of the other measures that will affect property landlords following the latest Budget.

Restriction of interest relief for individual landlords

For years, landlords have been able to claim tax relief for the borrowing costs incurred on the property.

By 2020/21, individual landlords of residential property will only be able to claim tax relief at basic rate. The changes will be phased in from 2017 as follows:

  • From 2017/18, 25% of the finance costs will be subject to the basic rate relief;
  • This will increase to 50% for the following tax year 2018/19;
  • Another increase to 75% for the tax year 2019/20;
  • And finally, from 2020/21 ALL finance costs will be relieved at basic rate.

This is to “make the tax system fairer” (but of course!) and to ensure “that landlords with higher incomes no longer receive the most generous tax treatment.”

But this goes against the principle that in the UK, we tax business profits, not turnover. That is, we tax the business owner on what ends up in his pocket at the end of the day.

Note that these new rules only apply to:

  • Individual landlords; who
  • Rent out residential property.

They do NOT apply to furnished holiday lettings, which are treated as a trading venture.

Download the Policy Paper here.

Rent a room relief increased

Happier news for those people who just let out one room rather than a whole building. The level of Rent-a-Room relief will increase from £4,250 to £7,500 from April 2016.

Download the Policy Paper here.

Reform of the wear and tear allowance for residential landlords

Wear and tear is the allowance given for replacement furniture – normal capital allowances aren’t permitted for residential lettings. A Consultation Paper will appear before the end of the summer.

(No link – see the Summer Budget 2015 Overview at paragraph 2.58).

The actual legislation won’t be published until next week Wednesday 15 July 2015. We shall be able to see more detail at that point – in particular, any anti-avoidance provisions which may apply.

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Satwaki Chanda

Satwaki Chanda

Satwaki Chanda is a tax lawyer with a First Class degree in Mathematics. Called to the Bar in 1992, he is the Editor of Tax Notes.
Satwaki Chanda

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