We’re only seven months in to 2016, but already we’ve seen a raft of changes and future changes announced that will affect buy-to-let landlords. We’ve outlined the key changes below.
Stamp duty rise
Since April this year, most purchasers of buy-to-let properties have had to pay three per cent more in Stamp Duty Land Tax (SDLT).
This means that even those buying modestly-priced buy-to-lets are paying thousands more in SDLT. For example, someone purchasing a buy-to-let for £150,000 now pays £5,000 in SDLT compared with the £500 they would have paid before 1 April.
The SDLT rate rises progressively according to the property’s purchase price. With the three per cent increase, the following SDLT rates now apply to buy-to-let properties (and second homes):
- Up to £125,000: 3 per cent
- £125,000.01 to £250,000: 5 per cent
- £250,000.01 to £925,000: 8 per cent
- £925,000.01 to £1,500,000: 13 per cent
- Over £1,500,000: 15 per cent
Wear and tear costs
Until April this year, landlords could deduct an annual allowance from their taxable profits for wear and tear, irrespective of what they spent.
Now, however, they can only claim for the cost of items they have bought to replace worn ones. To do so they must supply itemised receipts.
Rent a Room tax exemption
Under the Rent a Room Scheme, those who let out furnished accommodation in their home to a lodger or on a casual basis (such as via AirBnB) can earn up to £7,500 from such lets tax free. Under the scheme, you can rent out a room or an entire floor. The tax-free threshold is halved if you share the income with someone else (for example, your partner). Before April 2016 the threshold was just £4,250.
Mortgage interest tax relief
Currently, buy-to-let landlords can claim back a percentage of their mortgage interest payments equal to the percentage of tax they pay, which for those in the highest income bracket is presently 45 per cent.
Phased in over four years from April 2017, the amount of tax relief that buy-to-let landlords can claim on mortgage interest payments will be cut to the base rate of tax (currently 20 per cent) for everyone.
Capital Gains Tax (CGT) changes
In the 2016 budget the Chancellor slashed the basic rate of Capital Gains Tax (CGT) from 18 per cent to 10 per cent and the higher rate from 28 per cent to 20 per cent for profits made from assets such as stocks and shares, but not property.
This means those selling property will now pay eight per cent more CGT than those selling other assets.
In addition, from April 2019, CGT will need to be paid within 30 days of selling a residential property. Currently, it is paid at the end of the tax year via the seller’s annual return.
Legal advice on investment property
For expert advice on all legal aspects of investment property please contact Partner Hannah Bambury: