Buy-to-Let Landlords in the Firing Line

March 29, 2016

Residential Property, Wills and Probate

Buy-to-Let Landlords in the Firing Line

Buy-to-let landlords would have been left groaning after reading the Budget. 

From increased Stamp Duty Land Tax (SDLT), to changes to wear and tear claims and mortgage interest relief, the 2016 Budget has buy-to-let landlords and second home owners in its sight. 

The Chancellor confirmed that there would be a 3% increase in SDLT for those buying additional residential property who complete on or after 1st April 2016. This means that a £300,000 property which previously attracted SDLT of £5,000, will now attract SDLT of £14,000.

Two other important changes that were brought in by the Budget (but did not attract the same headlines) were to mortgage interest deductions and wear and tear rules in relation to residential property.

The current rules are that landlords of residential accommodation (not including furnished holiday lets) can claim all of the mortgage interest they pay against the income they receive. They therefore only pay tax on ‘profit’ after the deduction of this and other valid expenses. 

New rules will be phased in over a three-year period from 2017 to 2020. From April 2020, there will be a flat rate of relief for mortgage interest at just 20%. Those paying income tax at 40% and 45% will lose 50% or more of the relief. 

From April 2016, the old wear and tear rules will be replaced. Residential landlords had been able to effectively deduct 10% from their rental income to cover wear and tear. The new rules will only allow a deduction for the actual cost of replacing furnishings in that particular tax year. As this is replacement relief, and not purchase, initial expenses will not be allowable. 

There is due to be a technical consultation on this point later in the year. 

It is clear that the Chancellor wants to free up the market for first time buyers who are currently pushed out by investors who can afford to borrow more and therefore pay more.

posted by Anna Casey-Woodward | March 29 2016