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New tax rules are coming – here is what buy-to-let landlords need to know

Wednesday, February 3rd, 2016

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Chancellor George Osborne announced a raft of significant tax changes for buy-to-let landlords in the summer Budget; however, such was their complexity that it took months for these changes and their implications to be properly understood.

Basically, the changes are going to see landlords paying much more in tax than previously. Therefore, it is crucial that these landlords understand which expenses they will still be able to claim when many of the changes come into force. Here is a brief run-down of various changes; for more thorough advice, landlords can get in touch with us at Accounting People.

Good news and bad news for landlords

The bad news is that the majority of expenses of buying and selling a property, which are called capital expenses and include the purchase price and fees paid to agents, cannot be reclaimed from the taxman. The good news is that there are still many other costs of running a buy-to-let property which can be used to offset the new daunting levels of income tax.

Mortgage interest costs will no longer be reclaimable

Though landlords are currently able to deduct mortgage interest expenses from their rental income when calculating the profit on which they will be required to pay tax, an incoming law change in this area will be less kind to landlords.

Soon, it will be whatever rent income they have received, rather than whatever of this income is left after mortgage interest payments, that will be taxed. This tax change will be phased in from 2017 before it comes into complete effect by 2020.

A different story for various costs of securing a tenant

If the property is rented out privately, the costs of advertising for tenants, obtaining tenancy agreements, credit checking, protecting deposits, referencing and professional inventory can all be reclaimed.

A key allowance for maintaining the quality of furniture is getting axed

Right now, for a furnished property, it is possible to claim back either the exact cost of replacing individual items of furniture or a more general “wear and tear” allowance. The latter is 10% of the annual rent minus costs, including council tax, that are paid on the tenant’s behalf.

This allowance can be the more generous option for many landlords, as it can be claimed even if they have not actually spent any money replacing or repairing the furniture during the tax year. However, that allowance will be going from April 2016.

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