Member Article

Buy to Let landlords under fire from April 2016

Buy to Let (BTL) owners are under fire yet again with the scrapping of the 10% tax break for wear and tear of their properties, which comes into force on April 2016.

Andrew McDaid, partner at Mitchells Chartered Accountants and Business Advisers based in Chesterfield, offers tax planning advice on how landlords can benefit ahead of the tax relief being scrapped.

He said: “While the forthcoming changes do hit profits harder than ever before there are ways in which landlords can profit, including deferring the costs of a refurbishment programme until after April 2016. Doing so will not affect the “wear and tear” allowance for the current (2015-16) year, which is not affected by actual expenditure: but it will mean that the replacement cost will rank for tax relief after April 2016.

“Secondly, landlord’s considering buying additional properties, should consider buying an existing BTL with old worn-out furniture and replacing it more or less immediately with modern equivalents as this will qualify for “replacement” relief. After 2016 where an empty property is purchased and equipped from scratch it will gets no tax relief under the new rules.”

Traditional “wear and tear” allowance is equal to 10% (broadly) of the gross rent. “Wear and tear” allowance is not related to the actual cost of providing or replacing furniture or other capital items in the let property. In the 2015 budget the Government decided to replace the system by only giving relief on the cost of replacing capital items on a like-for-like basis as and when items are replaced.

Alongside the scrapping of the wear and tear allowance, landlords face a further raft of BTL penalties, including a 3% Stamp Duty Land Tax (SDLT) surcharge on second homes which comes into force on April 2016, the restriction of tax relief on loans to buy BTLs from April 2017, followed in April 2019 by changes to Capital Gains Tax on residential property which will have to be paid to HMRC within 30 days of disposal rather than the current 12 month period.

With the changes due to come into force from April 2016 followed by those in the subsequent years afterwards, Andrew McDaid warns of substantial rent increases in the private sector. He said “The government is financially penalising landlords in an effort to limit the growth in BTL properties, however this is at a time the supply of rental property is already struggling to meet demand. The rental market will diminish, demand will increase and so will prices in the sector.”

Full details of the Tax Relief for Replacing Furnishings in Let Residential Dwelling Houses which will replace the current ‘Wear and Tear’ allowance can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447461/150715_Wear_and_tear_condoc.pdf

This was posted in Bdaily's Members' News section by Anna Melton .