I’ve been working on a large number of tax returns that do include income from property and the conversation has drifted to the new rules which are being phased in over the next few years. I have featured a similar article previously but felt it was appropriate to refresh some of the points.
As a reminder its really important to complete a tax return and declare the income if you let property. HMRC have some pretty sophisticated ways to identify let properties and also do monitor Land registry transactions when it comes to sell the property. In recent years the former Chancellor George Osborne has seemingly made it less attractive to let property with a series of measures aimed at Landlords aimed at rebalancing the housing market.
- Unfurnished Properties - The renewals basis for things like white goods was abolished 6 April 2013 for unfurnished property leaving landlords with no relief against expenditure on things like fridges and cookers (unless built in) - ironically they could be rented and this would be allowable! The good news is that this has been reinstated from 6 April 2016.
- Furnished Properties (remember these properties need to be ready to move into - not just a table and a bed!) - Landlords currently enjoy a 10% wear and tear allowance on rents received which can be very helpful. 2015/16 will be the final tax year when this can be claimed. Furnished property is being aligned with the replacement basis for unfurnished property with effect from 6 April 2016.
- All properties - at present full tax relief is available for interest on a loan used to fund a property or improvements. This is charged as an expense and the ‘profit’ is then incorporated into your tax calculation. The relief is being reduced with effect from 6 April 2017, so the current tax year is the last tax year for gaining full relief on mortgage interest payments for higher / additional rate tax payers. Sadly this is where the simplicity ends. Because interest will no longer be a ‘deduction’ (it will be a tax adjustment instead) the income (pre interest) is shown as a ‘profit’ in your tax calculation – this determines things like tax credits, child benefit, higher rate tax thresholds etc. The reduced interest relief is then deducted from your tax bill. This could be quite a nasty trap for people with properties that are breaking even in the £40,000 to £50,000 band with unplanned tax consequences.