The Treasury seems to be committed to wringing the last available drop of tax revenue from the buy-to-let sector.
In the Budget last week the rate of capital gains tax (CGT) was reduced from 6 April 2016.
- From 28% to 20% if the gains fell to be taxed as part of the higher rate tax band, and
- From 18% to 10% if the gains fell to be taxed as part of the basic rate tax band.
But this excluded gains on disposals of residential property. Thankfully, the principle private residence relief for home owners is untouched – sale of your home is still tax free. However, other residential property sales will be taxed at the 18% and 28% CGT rates.
This de facto tax increase for landlords follow hard on the heels of previous changes to the taxation of the letting sector.
- From 6 April 2017, tax relief for mortgage interest to fund the purchase of residential property for letting will be reduced over a number of years until landlords are restricted to a basic rate tax credit. This could potentially more than halve the tax relief available for loan interest and promote many unwary landlords into the higher rate tax bands.
- From 6 April 2016, the 10% wear and tear allowance is being abolished and landlords after this date will only be able to claim for the actual cost of replacing qualifying furniture and fittings. For many landlords this will result in an increase in their tax payments from 2016-17.
- From 1 April 2016, landlords will pay an additional 3 percentage points on the stamp duty charged when they purchase a buy-to-let property.
By far the most insidious of these changes is the gradual reduction in the tax relief for loan or mortgage interest payments. Although the start of this process is still a year away, landlords would be well advised to seek professional advice to see exactly how they will be affected and what changes they will need to make in order to survive…