Landlord taxes: two years of change

Landlord taxes: two years of change

In the summer 2015 Budget, the UK government began to implement a series of reforms targeting landlords and, in particular, the buy-to-let market.

These new measures have made significant changes to how landlords report their income and calculate their tax payments.

Two years into their introduction, it’s time to look back on what’s changed what it might mean for residential landlords.


Stamp duty

Then: Previously, landlords were subject to the same stamp duty land tax (SDLT) as everyone else buying a property. However, in a bid to raise funds to build more affordable housing and reduce demand from the rental sector, the government added a surcharge for anyone buying additional residential properties.

Now: With effect from 1 April 2016, all owners of existing residential properties in England, Wales and Northern Ireland were required to pay an additional flat tax of 3% of the property value on top of the standard SDLT on each new property purchased.


Finance cost relief

Then: Historically, landlords have been able to write off interest payments on mortgage interest, property loans and overdrafts as a deductible business expense. The government decided that this disproportionately benefited landlords with higher incomes, so from the 2017-18 tax year they’re phasing it out in favour of a flat rate tax relief amounting to 20% of either your finance costs, property profits or adjusted total income – whichever’s lowest.

Now: These reforms mean that landlords who currently pay higher-rate taxes could face increased costs. However, those operating as a company, rather than a sole trader, partnership or trust, will escape the change altogether.

For a more detailed look at these changes and how they apply to landlords, take a look at our Landlord tax relief changes explained guide


Wear-and-tear allowance

Then: Before the new rules, landlords could deduct 10% of their annual rental income as a simple way to account for wear and tear to fittings and furnishings.

Now: From 6 April 2016, this has been abolished to ensure landlords only claim for actual replacements to furniture, white goods and kitchenware.

In order for deduction claims to be valid, replacement furnishings must be like-for-like or “the nearest modern equivalent”, so the new rules mean landlords must keep strict inventories in order to stand up to HMRC scrutiny. In addition, landlords may only deduct direct expenses, which will vary from year to year.

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