On 16 March 2016, the Chancellor of the Exchequer, George Osborne, delivered the 2016 Budget. Insofar as the buy-to-let market is concerned, it has been variously described as “a kick in the teeth for” and “an outright assault on” residential landlords.
In the emergency Budget delivered in July 2015, the Chancellor had already announced that from 2017 mortgage interest relief on rental premises will be reduced to the basic rate of income tax only. Various further announcements made in the 2016 Budget have done little to brighten the mood of residential landlords. These include the following:
- From 1 April 2016 a surcharge of 3% on stamp duty land tax (SDLT) will apply in respect of purchases of “additional residential properties”, such as buy-to-let properties and second homes with a clause above £40,000. The higher rates of SDLT will apply in England, Wales and Northern Ireland. The government has made some changes to the original proposals made by it in response to the consultation launched by it in December 2015. These changes include (a) the removal of the proposed exemption for corporate bodies and funds owning more than 15 residential properties thus creating a level playing field for taxpayers, while being a big blow to large scale investors; (b) the ability for a purchaser who had to pay the higher rate of SDLT because they purchased a new main residence before disposing of their previous main residence, to obtain a refund of the additional 3% SDLT if they dispose of their main residence within 36 months; and (c) a purchaser who owns more than one property but disposes of their main residence having 36 months to purchase a new main residence before the higher rates apply. Where the main residence was sold before 25 November 2015 (being the date of the Spending Review and Autumn Statement), the 36 month period runs from that date, and not the date the property was sold. Where the surcharge applies, the SDLT rate will be 3% above the current rates for residential property.
- The government is cutting the higher rate of Capital Gains Tax (“CGT”) from 28% to 20% and the basic rate from 18% to 10%. This will take effect for relevant disposals made after 6 Aril 2016. However, the old rates will be kept in place for chargeable gains on residential property. Private residence relief will remain so that an individual’s home will not be subject to CGT.
- From 6 April 2016, the current tax relief of 10% of the rent received to cover renewal of furniture was abolished. From that date, landlords can only claim for money actually spent on furniture.
- On a slightly more positive note, from April 2017, the government announced that it will introduce a new £1,000 allowance for property income. Individuals with property income below £1,000 will no longer need to declare on or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit by deducting their expenses in the usual way or by deducting the relevant allowance.
*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.*