YOU are undoubtedly aware of the Chancellor’s changes to the tax relief on residential dwellings. Will this affect you? Almost certainly yes to a varying degree depending upon the profile of your residential portfolio. ?
The Tax team at Cottons LLP were pleased to be asked by Chelton Brown to put together a simplified overview of the tax changes and how they will affect landlords.?
At a glance what are these changes.
* Wear and tear allowance for furnished lettings is abolished from 6th April 2016 for income tax purposes.
* All landlords of residential dwellings, irrespective of how they are furnished, will from 6 April 2016 be able to claim the costs they incur when replacing furnishings, appliances and kitchenware.
* The replacement of fixtures in the property will continue to be treated as a repair.
* There will be a restriction on finance costs allowable for tax purposes.
* Capital gains tax rates that apply to chargeable gains on the sale of residential property will remain at the 18% and 28% rates. The reduction in rates announced in the 2016 Budget will not apply.
* From 1 April 2016 new rates on Stamp Duty land tax applies to the purchase of additional residential properties.
The Chancellor didn’t change the tax reliefs on furnished holiday lettings which remains unchanged for claiming tax on capital items. In addition the favourable Capital Gains Tax rates still apply.
He generously increased the rent room relief from 6th April 2016 from £4,250 to £7,500 per annum.
So what does this all mean?
The key point is that original costs can’t be claimed for furnishings when you start to let. Examples include televisions, fridges, beds, curtains, crockery and cutlery. Items replaced must also be substantially the same as the old ones. Any improvement will be disallowed.
Replacement of fixtures in the property will be continued to be treated as repairs. This will include baths, toilets, boilers, fitted kitchen units etc.
The restriction on finance costs will only apply from April 2017 and will be gradually introduced over the next four years. By 2020/21 only basic rate relief will be given as a reduction in the tax calculations. This will apply to mortgage interest and costs in raising loan finance.
As taxpayers you need to assess the impact of the finance changes that will be gradually brought in. There may be a need to plan your Capital Gains Tax exposure and the Stamp Duty increase of 3%.
Tax legislation continues to change and careful planning aligned to tax strategies will require thought when operating your property portfolio.
For a free initial consultation contact Chelton Brown can be contacted on 603433 or visit www.cheltonbrown.co.uk