In last year’s Summer Budget, George Osborne announced changes to the way landlords can claim tax relief on their mortgage finance costs. In his Autumn Statement, the Chancellor then announced proposed changes to Stamp Duty Land Tax on properties purchased for Buy to Let purposes.
Tax relief on interest costs
Landlords can currently deduct mortgage interest from their rental income before calculating how much tax they should pay.
From April 2017, tax relief on Buy to Let mortgage interest will gradually be reduced. The restrictions will be phased in over four years, resulting in tax relief only being available at the basic rate of income tax (currently 20%) from April 2020:
Wear and Tear Allowance to go
Up until April 2016 only landlords of fully-furnished residential properties could claim tax relief for wear and tear on furnishings.
This ‘Wear and Tear’ Allowance has been replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property, such as:
- fridges and freezers
- carpets and floor-coverings
- crockery or cutlery
- beds and other furniture
The initial purchase of furniture, furnishings, appliances and kitchenware won’t be eligible for the tax relief.
Changes to Stamp Duty Land Tax
Stamp duty on properties purchased for Buy to Let purposes will increase by 3% for each band from April 2016. This will mean that even properties up to the value of £125,000 that would previously have attracted 0% stamp duty will now attract the 3% Buy to Let / second home rate.
Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.