What does 2016 have in store for Landlords?

Thanks to the General Election in 2015 we received 3 instalments from Chancellor Osborne none of which contained any particularly positive tax news for Landlords. With a stable government now in place it is unlikely that we will experience so much upheaval in 2016.

If you are a Landlord of a residential property there are 3 important dates on the horizon that you should be aware of:

6 April 2016 – Wear & Tear allowance changes come into effect

A window of opportunity has been given following announcements made some time ago to the wear and tear allowance for furnished residential lets. In simple terms this allowance was available to Landlords providing fully furnished accommodation and provided a tax deductible amount equal to 10% of adjusted rental income whether or not that expenditure was actually spent.

From 6 April 2016 new rules apply which simplifies the way in which relief is obtained and removes the divide between furnished and unfurnished properties. Out goes the 10% rule and in comes relief for expenditure incurred on the ‘renewals basis’ for non-fixed furnishings (televisions, moveable furniture, fridges, etc).

If you are a Landlord and have a property that is in need of a facelift the advice continues to be to wait until 6 April 2016 to incur the expenditure.  In most instances tax relief will be greater by waiting until that time to spend the money.

16 March 2016 – Budget Day

The previous announcements on mortgage interest relief and Stamp Duty Land Tax haven’t been particularly well received on the whole. The former is likely to lead to reduced profitability for traditional highly-geared buy-to-let properties and the latter is likely to make it more challenging to offload them to the market.

The mortgage interest relief restrictions have been well publicised and can lead to far greater tax implications that just the intended restriction of mortgage interest to the basic rate of tax.

Landlords should pay particular attention to the Budget to see if the Chancellor has listened to the concerns raised or whether any further changes are announced that affect them. We’ll update you on such changes immediately after the Budget.

1 April 2016 – Stamp Duty Land Tax (SDLT) on ‘second homes’

As announced in the Autumn Statement 2015 an additional 3% SDLT will be payable on second homes purchased on or after 1 April 2016. It should be noted that similar rules are being operated in Scotland such that Land & Buildings Transaction Tax (LBTT) will result in an additional 3% becoming payable.

A property being sold for £250,000 will therefore result in £10,000 SDLT becoming payable from 1 April 2016 onwards compared to £2,500 before that date. LBTT in Scotland will be £9,600 compared to £2,100 on a property of the same value.

The new rules apply to properties sold for over £40,000 meaning the vast majority of sales will be caught by the changes.

Recent months have seen a flurry of activity in the sector as landlords looking to expand their portfolios seek out additional properties and those looking to exit bring their properties to the market. It is anticipated that the market for suitable properties looks set to cool somewhat from April.

If you would like to discuss how these changes affect you or would like a review of the tax position of your property portfolio please contact Chris Carr at chris.carr@armstrongwatson.co.uk.

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