Chartered Accountants and Professional Business Advisers

Squeeze on buy-to-let landlords

This article is from the autumn 2015 edition of Shipshape

Landlords who receive rental income on residential property and incur finance costs (such as mortgage interest) currently usually get full tax relief on these expenses at their marginal rate of income tax.

The interest cost is deducted in calculating the rental profit. Phased in from April 2017 over four years, this deduction will be restricted and replaced by a basic rate credit (20%). This, and its effect on a landlord liable to tax at 40% paying interest of £10,000 per annum, is shown in the table below.

This new method may have unexpected consequences, for example it could reduce your personal allowance and pension annual allowance or mean you have to pay tax on child benefits.

Wear and tear

Currently a landlord of a furnished property can deduct 10% of rent as a wear and tear allowance. From April 2016 this will be replaced by a deduction for the cost of replacing specific items, available to landlords of furnished and unfurnished residential property. The relief will apply to the net cost of replacing furniture, carpets, curtains, linen, crockery, cutlery, televisions, white goods etc, but it excludes any element of improvement.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above. If you would like advice or further information, please speak to your usual Shipleys contact.

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