A quick overview of the main changes affecting landlords.
After the nasty surprises in the July 2015 Budget and in the Autumn Statement 2015 landlords were doubtless fearful of more attacks on their livelihoods in the Spring Budget 2016.
For the most part I am glad to say that their worst fears have not come to be.
Finance costs deductions for individual investors in buy to let properties
There is no change of any significance to previously announced measures to restrict the deduction to the Basic Rate of tax for individuals.
Limited companies are not affected – nor are investment in commercial and mixed use properties.
New £1,000 property income allowance
In a throw-away comment relating to “the sharing economy” the Chancellor announced that
“the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free”.
Unfortunately this is not backed up with any supporting documentation on the HMRC website – but I predict with a fair degree of confidence that this is not a tax break for BTL landlords.
I suspect its availability will be tightly defined to ensure it applies only income arising from the likes of Airbnb where a house owner receives rental income from renting out their home.
This will be in addition to the £7,500 tax free allowance for renting out a spare room in your home.
Stamp Duty Land Tax for residential properties
The 3% surcharge on second residential properties comes in on 1st April and there is not to be any exemption from this for large or corporate investors as had been mooted originally.
How much stamp duty will you owe?
Stamp Duty Land Tax for non-residential properties
Also, with effect from today, the way in which SDLT is to be calculated for non-residential properties is to be changed from the previous “slab” system whereby an increase of £1 in the purchase price could lead to an increase of several thousand pounds in SDLT if the change pushed the consideration over a tax threshold.
In future it is to be a “layered” tax at the following rates:
|Transaction Value||Band Rate|
|£0 - £150,000||NIL|
|£150,001 - £250,000||2%|
For transaction valued at less than £1,050,000 this will lead to a reduction in SDLT – those above £1,050,000 will carry an extra 1% on the excess value over £1,050,000.
Where contracts have been exchanged but transactions have not completed before midnight on 16th March 2016 purchasers will have a choice of whether the old or new structure and rates apply.
Capital Gains Tax
There is to be a reduction in the rate of Capital Gains Tax payable by individuals from 28% to 20% for higher rate tax payers and from 18% to 10% for Basic Rate tax payers.
However this is of no benefit to buy to let investors as sales of residential property (other than principle private residence – i.e. your home) are to be taxed at the old rates.
However if properties are owned in a limited company, a sale of the limited company (rather than the property itself) would be a sale of shares (not of property) and would therefore attract the lower rate of Capital Gains Tax.
The rate of Corporation tax is currently 20% and this was due to reduce to 18% by April 2020. This is now to reduce to 17% by April 2020.
Buy to Let Tax Calculator: A spreadsheet to help you calculate your future tax liabilities and work out whether or not you might be in a better position borrowing via limited company.
Not directly relevant for property investors – the annual threshold for 100% relief on business rates for small firms to rise from a rateable value of £6,000 to £12,000 with the relief tapering down to nil at a RV of £51,000 (previously £18,000).
Trading in and Developing UK Land
A change is being made to ensure that foreign investors cannot avoid UK tax.
The above information does not constitute tax advice.
For information on how the changes affect your personal circumstances, please talk to your accountant or a qualified tax professional.
Alternatively, you can email me: firstname.lastname@example.org