Buy-to-let changes 2016: what you need to know

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    Buy-to-let changes 2016: what you need to know

    tamp duty

    Earlier this year the Government announced it would be increasing stamp duty for those buying second homes, including buy-to-let properties. As of April this year, landlords have to pay a stamp duty surcharge on buy-to-let homes of three percentage points above the previous rates.

    For example, if you bought a second property before 1 April 2016 for £500,000 you would have paid 0 per cent stamp duty on the first £12,000, 2 per cent on the next £125,000 and 5 per cent on the remaining £250,000, which works out as £15,000 in total. The new rates are 3 per cent, 5 per cent and 8 per cent respectively, which would double the amount of tax payable on this property to £30,000.

    Wear and tear

    April this year also saw the implementation of the new rule that means landlords can only claim for wear and tear costs that have actually been incurred.

    Under the previous rules, landlords were allowed to deduct an annual allowance from their taxable profits for wear and tear, regardless of what was actually spent. Now you will have to provide itemised receipts if you wish to have the costs deducted from your tax.

    Mortgage interest tax relief

    Another unpopular measure announced by George Osborne was a change to landlord tax relief.

    It means that landlords will only be able to claim the basic rate of tax as relief, regardless of which tax bracket they come under. For those who pay basic rate tax anyway there will be no change, but as many landlords fall into higher tax brackets this could have a serious impact on their income.

    At the moment landlords can claim back a percentage of their mortgage interest costs equal to the percentage of tax they pay, so those who pay basic rate tax can claim back 20 per cent of the mortgage interest costs, while those in the highest tax bracket can claim back 45 per cent. When these changes are implemented, the limit for the amount landlords can reclaim will be set at 20 per cent for everyone. The change will be phased in over a four year period, starting in April next year.

    However, those who have a lodger or wish to rent out a room on a casual basis - through AirBnB, for example - will face no tax on the first £7,500 of their income. Before April, the amount had been frozen at £4,250 since 1997.

    House prices

    According to the Halifax House Price Index house prices are up 8.5 per cent since last year, as of July 2016. There is a lot of speculation about how house prices will change in future, but what we do know at the moment is that the average price of buying a house in the UK is now £215,582, up from £211,868 in the first quarter of the year.

    While house prices have continued to rise, the annual growth of 8.5 per cent is actually the slowest rate of growth since the third quarter of last year.

    Capital gains tax

    As part of the 2016 budget the Chancellor announced a cut to capital gains tax, but this cut will not be applied to landlords.

    The basic rate of capital gains tax has gone from 18 per cent to 10 per cent, while the higher rate has fallen from 28 per cent to 20 per cent. Profits made from assets such as stocks and shares will now be subject to these lower rates of tax, but the same is not true of properties. Landlords (and homeowners) who sell their properties will now effectively be subject to an eight per cent surcharge that those selling other assets won’t face.

    #2
    Well, great post!

    Love the spelling mistake: I've spotted several actual and also probable factual errors: Anyone else see any?
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


      #3
      April this year also saw the implementation of the new rule that means landlords can only claim for wear and tear costs that have actually been incurred.

      Under the previous rules, landlords were allowed to deduct an annual allowance from their taxable profits for wear and tear, regardless of what was actually spent. Now you will have to provide itemised receipts if you wish to have the costs deducted from your tax.
      Well, that's not exactly right is it?

      The wear and tear allowance only applied to fully furnished lets.
      The change is actually positive for non-furnished landlords who can now claim for items previously excluded from claims, such as furnishings (which includes kitchen white goods, carpets and curtains).
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

      Comment


        #4
        The capital gains tax at 10% rate only applies to sale of shares in unlisted companies in which the holding is greater than 5% ( entrepreneur's relief ) .

        The 18% and 28% rate for capital gains tax has not changed for captal gains after sale of BTL property held under personal name.

        Comment


          #5
          I have a fully furnished flat, does that mean if I provide eg, new rugs as the old ones are worn, I can also deduct such items on my tax return? Re 'itemised receipts' - do I attach the original receipts to my tax return? The radiators in my rental flat were put in in 1996 and are slightly rusted - if I cover them with radiator covers, instead of replacing them, can I deduct the cost of the covers?

          Comment


            #6
            Assuming this flat is let out then yes. I always do my tax return online but I don't think you need to submit receipts either way, just keep them safe, preferably attached to proper records of income and expenditure. What are radiator covers? Never heard of them. Do they reduce the efficiency of the rads?

            Comment


              #7
              If the radiator covers are what I believe them to be then this is an improvement and can only be classified as a Capital Cost which can only be used on disposal. If you however were replacing the existing radiators then the cost can be deducted against your rental income for the period being claimed.

              Comment


                #8
                Originally posted by DPT57 View Post
                What are radiator covers? Never heard of them. Do they reduce the efficiency of the rads?
                See the link below. They are pretties. I've got one in my hall, I suppose they reduce the efficiency a bit, but I've never noticed.


                http://www.diy.com/departments/mayfa.../944581_BQ.prd

                Comment


                  #9
                  Thanks for the replies; just asking these questions as I'm about to get stuff for my flat before I let it out again. I've had floor lamps and a TV in previous years but chucked them out when they broke & didn't replace them, if I bought new ones now, would that come off capitol gains or can I deduct them as an expense on my tax return for 2016/17?
                  Still a bit confused about these new rules.

                  Comment


                    #10
                    It is not necessary to provide floor lamps or TV for letting out your flat. So don't bother. Less furnishing is better.

                    Comment

                    Latest Activity

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                    • Caught out by changes to Capital Gains Tax
                      by reluctantlandlord1976
                      I appreciate 'ignorance' is no excuse, however there are some mitigating factors, i.e. due to illness etc.

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                      06-12-2021, 13:51 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by reluctantlandlord1976
                      Thank you Gordon, didn't see your response this afternoon. I will look at this with fresh eyes tomorrow as it's late now.
                      I've put some figures in my reply to a post just now but answers below to your questions.

                      a] £80k Jan 2021 sale price.
                      b] As property purchased before...
                      08-12-2021, 00:55 AM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by reluctantlandlord1976
                      Andrew, apologies only just seen your post [was it awaiting approval did you say?] answers are:

                      Purchased March 1982 as joint tenancy - so equal split of 33 1/3% each party
                      Parent 2 died September 2007 - as joint tenancy I inherited their share - so at this point I own 100% of property...
                      08-12-2021, 00:41 AM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by reluctantlandlord1976
                      JP Keates
                      I wasn't aware that refurbishment deductions only applied in terms of letting out the property. On the CGT calculator it asked 'How much have you spent on improvements since you became the property owner'.....

                      Here's the timeline:

                      March 1982 - 1992 3 Owners,...
                      07-12-2021, 18:01 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by reluctantlandlord1976
                      JP Keates et al - thank you very much for your assistance. I have this afternoon emailed an accountant to try and get an appointment urgently. I hadn't realised it was all so complicated and it was remiss of me to not be aware of the CGT changes made in 2020 due to not renting out the property. Thanks...
                      07-12-2021, 17:28 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by jpkeates
                      Refurbishment while you were living there is only allowable against CGT if it was solely and exclusively for the business, so if it was to prepare the property to be let, it would be OK.
                      If it was simply to improve what was then your home, it fails the basic test.

                      Get yourself to...
                      07-12-2021, 16:22 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by AndrewDod
                      The probate resets a lot of the stuff, but my main response was unapproved
                      07-12-2021, 15:36 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by AndrewDod
                      You are really short on detail:

                      Date (year & month) bought in joint names ______ (what % was yours then)
                      Date it converted to your sole name ______ (presumable date of death of parent 2?)
                      Declared vale at probate _________
                      Capital expenses between date of probate 2...
                      07-12-2021, 15:33 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by reluctantlandlord1976
                      We were all joint owners. Bought it with parents. I lived there for 10 years before buying own home. I became sole owner upon their deaths. Rented out since 2007-2019. Empty last two year as trying to sell. Hence I was off the landlord radar. I am now extremely worried by your statement that refurbishment...
                      07-12-2021, 14:53 PM
                    • Reply to Caught out by changes to Capital Gains Tax
                      by AndrewDod
                      Let us know the exact timescale and money involved year by year - I am sure some kind person (or even myself) with do a calculation for you so that you can assess the risks involved
                      07-12-2021, 14:33 PM
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