Over the past 12 months the Government has hit landlords hard with changes to the tax they pay and can claim back. We have compiled a few tax rules for our Landlords to consider.
Stamp Duty Land Tax (SDLT)
As of the 1st April 2016 anyone purchasing an additional residential property (ie.not their main residence) for £40,000 or more must pay an extra three per cent stamp duty above the current Stamp Duty Land Tax (SDLT) residential rates.
The current rates mean that you pay stamp duty land tax on increasing portions of the property price above £125,000 when you buy residential property. For instance:
Up to £125,000 the SDLT rate is zero.
The portion from £125,001 to £250,000 the SDLT rate that you will pay is 2%.
The portion from £250,001 to £925,000 a SDLT rate of 5% is applicable.
The portion from £925,001 to £1.5 million the SDLT rate is 10%
The portion above £1.5 million the SDLT rate is 12%.
Therefore for an additional buy-to-let property landlords will pay an extra 3% on top of these rates. It’s worth noting that purchasers now have 36 months rather than 18 months between selling a main residence and replacing it with another without having to pay the higher rates.
Restriction of allowable costs
All landlords with residential property inside or outside the UK are allowed to claim relief for finance costs such as mortgage interest incurred on the property they let. Tax relief is available at 40% and 45% for landlords paying tax at the higher and additional tax rates. However, this tax relief will be restricted to the basic rate of income tax (20%) by April 2020 and is being phased in gradually by the Government from April 2017.
Changes to Wear and Tear Allowance
In April 2016 the Wear and Tear Allowance for fully furnished properties was replaced with a relief that enables landlords of residential properties to deduct the costs they incur on replacing furnishings, appliances and kitchenware in the property. The relief given will be for the cost of a like-for-like, or nearest modern equivalent, plus any costs incurred in disposing of the old item, or less any proceeds received for, the asset being replaced.
Capital Gains Tax
Landlords are likely to have to pay Capital Gains Tax if they make a profit when they sell a property that’s not their home such as a buy-to-let investment. In the last 10 years there have been many changes to how Capital Gains Tax is charged. Currently the rate applicable to gains made on the sale of property is 28% and this amount is payable irrespective of whether a landlord intends to reinvest theses gains.
The above is presented with the intention of drawing your attention to said tax implications and to see how this effects your own circumstances it is advised you contact your own independent tax advisor.