Landlords – Have you got your house in order?
There are reportedly more than 125,000 privately owned and rented out dwellings in Northern Ireland – that’s around 20% of the total housing stock. It’s no wonder then that so many individuals are affected, confused and concerned about the tax changes in the buy to let sector introduced by the Chancellor in his recent statements.
So what are the changes?
Wear and Tear allowance
From April of this year, the attractive 10% wear and tear allowance on furnished property lettings is gone. Landlords can still claim for the cost of addressing wear and tear to their property – but there has to be evidence retained for all amounts paid, invoices, receipts and so on.
Mortgage Interest Relief
From 6 April next year, mortgage interest relief will be gradually phased out, to be replaced by a 20% tax credit from the 2020/21 tax year onwards. A long way off it may seem – but it has a real impact in terms of how it is calculated and how much relief is available.
For example, if you own and rent out two properties at present, and collect rent of £120 per week on each property, have a mortgage on each of say £60,000 with a 3% interest rate, and you spend £500 repairing each property each year, the chances are that, as a basic rate taxpayer, you are paying tax of just over £1,500 per annum. In similar circumstances under the new rules, the interest is no longer deductible; instead profit on the rental activity is calculated, you will receive a 20% tax credit on the interest; if you are a 20% taxpayer, your tax bill will remain the same but if you are a higher rate tax payer, the additional tax payable could be more than £700 per annum.
From 1 April this year, if you own (or partly own) your own home and purchase an additional residential property, you will be subjected to an additional 3% stamp duty land tax charge on properties costing more than £40K. On a property costing £80K, that means a SDLT bill of £2,400.
Watch out too when selling your own home and buying a new home – if there is a break in the chain and you end up holding two homes at a point in time, you may have to pay stamp duty and later claim a refund. Key point is that you will be temporarily out of pocket for more than you budgeted!
Are limited companies also affected by the changes?
Yes, and no.
For limited companies, the wear and tear allowance is also gone, but allowable expenses can be claimed.
Mortgage interest relief is still deductible from rental profits in arriving at profit chargeable to corporation tax, and tax is charged at 20% presently on these profits.
Additional stamp duty is payable on the acquisition of multiple properties.
If you need advice on your rental portfolio, give Gerard or Claire a call on 028 8772 4697.
Posted on September 2, 2016