Recent Tax Changes

Cuts to tax relief on mortgage interest
The Finance Bill 2015, which contained proposals to restrict finance interest relief for private landlords, received royal assent on 18th November 2015. Until now higher and additional rate tax payers have been able to claim mortgage interest relief at 40% and 45% respectively. A cap of 20% will be introduced in a phased manner between 2017 and 2021. Under the new system tax will be paid on income before the deduction of any mortgage interest and this will push many basic rate taxpayers into the higher rate bands.

End of the 10% wear & tear allowance
The removal of the 10% wear and tear allowance is effective from April 2016. From this date landlords will only be able to deduct the capital costs they actually incur on replacing furnishings in the property.

LBTT increase for Landlords in recent Budget

Legislation to introduce a 3% supplement on Land and Buildings Transaction Tax (LBTT) for purchases of additional residential property has now been passed by the Scottish Parliament.

The supplement will apply to purchases of additional residential properties (other than one which is intended to be they buyer’s main residence and is replacing their former main residence) which conclude on or after 1st April 2016.

Scottish Association of Landlords (SAL) campaigned against the supplement and were successful in achieving an exemption for large scale transactions of 6 or more properties.

     Capital Gains Tax Surcharge on selling

Landlords will now face a Capital Gains Tax (CGT) surcharge compared to other types of investors.

CGT is a tax levied on profit from the sale of assets like a property or shares. Everyone enjoys an annual CGT allowance, which currently stands at £11,100. The basic rate of CGT will be cut from 18% to 10% and the higher rate will be cut from 28% to 20% from April this year.

However, the gains made on residential property sales aren’t eligible for the new lower rates. Instead the Chancellor has maintained the existing rates, equivalent to an 8% surcharge. So those with second homes and buy-to-let investors will pay more.

Reduction in Corporation Tax

Corporation tax is now being reduced to 17% by April 2020. This will be good news for landlords who are buying property in limited company/SPV structures

We recommend that landlords who are concerned about the impact of the changes on their own business seek advice from an accountant/tax advisor.