There are two major property-related changes in the Budget statement which will affect “buy-to-let” investors in residential property (whether in the UK or oversea). Investors in commercial property are unaffected; as are investors in furnished holiday lettings.
The first change relates to “finance costs” such as mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. Starting from 6 April 2017 (and phased in over 4 years) tax relief for these costs will be restricted to the basic rate of income tax, this restriction applying to individuals only. Instead of deducting finance costs from rents to arrive at taxable profits, landlords will instead receive tax relief by deducting an amount equal to tax at the basic rate on the finance costs from the tax chargeable on the profits.
The second change relates to “wear and tear” allowance for furnished lettings. This applies to companies as well as to individual landlords. At present, the costs of replacing furniture and fittings are not tax-deductible. Instead, a notional deduction is given for tax purposes equal to 10% of rents. From April 2016 the 10% deduction will be abolished and instead tax relief will be given for the actual costs of replacements. This change does not affect tax relief for expenditure on routine repairs to the property, including furniture and fittings in it, which will continue to be tax-deductible in full.
