Rental property changes from 6 April 2016

It has been announced that some allowable expenses from rental income will undergo changes for landlords from April 2016.

Wear and Tear

 

One area affecting many landlords is that the wear and tear allowance will be replaced by a new system from April 2016. The past wear and tear allowance allowed landlords to deduct 10% of their rental income in calculating taxable profit to allow for wear and tear. This allowance will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year.

 

Under the new replacement furniture relief landlords of all non-furnished holiday let residential properties will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the property, such as:

 

  • Movable furniture or furnishings, such as beds or suites
  • Televisions
  • Fridges and freezers
  • Carpets and floor-coverings
  • Curtains
  • Linen
  • Crockery or cutlery

 

Tip – Delay expenditure if possible on replacements until after 6 April 2016 to maximise tax relief.

 

Finance Costs

The second area is that all landlords of residential property inside or outside the UK are permitted to claim relief for finance costs (In the main mortgage interest) incurred on their let property, giving tax relief at 20% for basic rate tax payers and 40% or 45% for landlords paying tax at either the higher or additional tax rates. The change is that this tax relief will be restricted to the basic rate of income tax of 20% removing the 40% and 45% reliefs.

 

Implementation will be phased from April 2017 as follows:

  • 2017/18 – The deduction from property income will be restricted to 75% of finance costs with the remaining 25% available at the basic rate.
  • 2018/19 – 50% of finance costs available for full tax relief and the remaining 50% available at the basic rate.
  • 2019/20 – 25% of finance costs available for full tax relief and the remaining 75% available at the basic rate.
  • 2020/21 – All financing costs incurred by a landlord will be given as basic rate tax reduction.

 

This simply means that if you are a higher rate tax payer you will be affected by this when the restriction on property finance costs comes in. If you have any questions on this please contact 01772 821 021.