Chancellor of the Exchequer George Osborne’s Budget announcement earlier today included a few surprises for the Private Rented Sector (PRS), landlords and tenants. The following is a reflection of the proposals affecting housing, property, the private rented sector and taxation.
Private Rented Sector & Taxation
- Restricting finance cost relief for landlords – The government will restrict the relief on finance costs that individual landlords of residential property can get to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017. Ministers belief that this will “shift the balance between landlords and homeowners.” A more detailed note from HMRC is available at https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords. This notes that Landlords will be able to obtain relief as follows:
- In 2017-18 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
- In 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
- In 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
- From 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
- Increasing the level of the Rent-a-Room relief – The government will increase the level of Rent-a-Room relief from £4,250 to £7,500 from April 2016.HMRC has published a more detailed briefing paper on this available at https://www.gov.uk/government/publications/rent-a-room-relief-increase.
- Reform of the Wear and Tear Allowance – From April 2016, the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. The government will publish a technical consultation before the summer.
Another area that will impact potential investors and landlords is property taxation proposals.
- Stamp Duty Land Tax (SDLT): application to certain authorised property funds – As previously announced, the government intends to introduce a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and intends to make changes to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units, subject to the resolution of potential avoidance issues.
The RLA will continue to analyse the Chancellor’s proposals within the Budget in greater detail to ensure that you have the most detailed and accurate information possible as there were some surprises in the announcements.