We are in business to take the stress away from being a landlord. And we are here to help even more. We will clear out some of the mist between landlords and the summer budget 2015. Recently released summer budget has caused a lot of questions within the community of landlords. Although, there is a lot of help available, speculations still get out and cause confusion.
Currently, individual landlords can deduct their costs and mortgage interest from their profits before they pay tax. Wealthier landlords receive tax relief up to 45 %. This tax relief will be restricted to 20 % for all individuals by 2020.
The amount of income tax relief that a landlord will be able to claim as an expense will be restricted if you are a higher rate taxpayer. The restriction will mean that higher rate taxpayers will only be able to benefit on interest paid at a rate of 20%.
If you are a higher rate taxpayer paying interest of £7,000 a year, your relief in terms of tax will be only £1,400 (20% of £7,000) rather than £2,800 (40% of £7,000) under the present rules. However, the changes will only start to apply from 6 April 2017. Until then, this year and next year, there will be no change.
Wear and Tear
From April 2016, the ‘wear and tear allowance’ will be changed to new system, which only allows landlords to get the tax relief when they replace the furnishings.
Currently, landlords of furnished properties can deduct 10% of their rent from their profit to account for wear and tear, irrespective of their expenditure. This means landlords can reduce their tax liability even when they have not improved the property. From April 2016, the government will replace this allowance with a new system that enables all landlords of residential property to only deduct costs they actually incur.
However, we will have to wait and see whether the cost can be written off in one year or over the course of a number of years.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. Newcastle Lettings Co. Ltd., their Partners or their employees cannot accept any responsibility for any loss arising from action taken or refrained from being taken on the basis of this publication.