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Impact of the 2015 Summer Budget on Buy to Let Landlords

Written by our recommended Tax specialist Nigel Reynolds from Reynoldsandco.

The Chancellor has given his second budget of the year.  This was expected due to the General Election which took place in May of this year.  Basically the Chancellor did not want to announce anything in his March Budget which would affect the Conservatives chances of getting re-elected.

In the run-up to the Summer Budget there has been much speculation about the possible changes that the Chancellor would announce and especially as relate to Buy to Let Landlords.

Now we have heard the Budget we know what has changed.  The Budget covers a wide range of Economic Reforms and Tax Changes which will affect all tax payers.  In this Newsletter we will only be looking at those items which directly impact on Buy to Let Landlords.  Our website in the tax information section has detailed coverage of all of the Budget changes.

As regards Buy to Let Landlords this includes two clear announcements, one announcement with a less obvious impact and one change which was not mentioned in the Budget speech itself but is in the ‘Red’ Book.

Moving on to the detail of the announcements:

  • The first clear announcement was the restriction on Mortgage Interest Relief to 20%.  This will be phased in over a four year period starting from 6 April 2017.  This will have no impact on Basic Rate taxpayers but may have a substantial impact on Higher Rate taxpayers.
  • The second clear announcement is aimed at those Landlords who claim Rent a Room relief for people occupying rooms in their main residence.  The value of this relief has been frozen at £4,250 since it was introduced in 1997.  With effect from 6 April 2016 this relief will increase to £7,500 a year.
  • The announcement which is less obvious comes into effect from 6 April 2016 and is the 7.5% tax on dividends above £5,000 for basic rate taxpayers.  This will affect those who have invested in Buy to Let properties through a limited company and who extract the profits as dividends.  Up until 5 April 2016 they can extract profits as dividends from their property company and not pay any tax on the amount of dividends covered by their basic rate band.  From 6 April 2016 it will cost them an additional 7.5% in tax on those dividends falling in their basic rate band.
  • The silent announcement in that it was not mentioned in the speech but is in the ‘Red’ Book, is the removal of wear & tear allowance from 6 April 2016 for Buy to Let investors (but not Furnished Holiday Lets) and allowing them to claim for replacements instead.  This is a reversal of policy and as always we will have to wait for the details to be issued in the next few weeks to have a full understanding of the impact.  Based upon the initial announcement we would advise any Landlords looking to change or replace the furniture in their furnished properties as well as those looking to change a property from unfurnished to furnished to wait until after 6 April 2016 in order to maximise their tax relief.  Other than this we expect an initial increase in tax on furnished lets and greater planning will be required on when furniture is replaced in order to maximise tax relief and even out tax payments.

All of these changes could have a material impact on the tax Buy to Let Landlords pay.  As always we will be discussing the impact of these changes with our clients over the next few months in order to minimise their impact.  As always we will be ensuring that our clients maximise the expenditure that they can claim for.  If you know of any Landlords or other Business Owners which we do not advise then we would be happy to speak with them and explain how we can help them.  As always you can contact Nigel Reynolds of Reynolds and Co on 07885 490484 to discuss the above or any other tax matters.


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