If you own buy to let property, there were a couple of changes announced in the Summer Budget which may affect you.
Wear and Tear Allowance
Landlords of furnished properties are allowed to deduct a flat rate 10% of rental income in respect of a wear and tear allowance. This is being removed from April 2016, and applies to individual and corporate landlords.
Instead of the wear and tear allowance, landlords of all residential properties – furnished and unfurnished – can deduct the actual cost of replacing furnishings, free standing appliances, carpets, curtains and other loose items which may be provided with the property. NB the initial cost of providing the furniture won’t be allowable.
Restriction of Relief on Interest
This change will only affect individual landlords, not company landlords.
Tax relief on interest (and other finance costs) will be removed and replaced by a tax credit equivalent to 20% of the restricted amount of interest. However, this is being phased in. From April 2017 (2017/18 tax year), the restriction will apply to 25% of the interest. This restriction will increase to 50% in 2018/19, 75% in 2019/20, and the full 100% in 2020/21.
The effect this will have on buy to let landlords will depend upon the level of debt on the lettings business. However, this should not affect landlords who are not higher rate taxpayers.