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Summer Budget 2015 – Buy-to-let tax shake up
9 July 2015
Buy-to-let landlords expected to lose mortgage interest tax relief in Chancellor George Osborne’s Summer Budget, but came away relieved to keep at least some of the tax break as some wealthier landlords are left counting the cost to their businesses.
Instead of axing the relief, Osborne has restricted claims to 20% which disadvantages professional landlords paying tax at 40% or 45%.
They have seen their major tax relief at least cut in half.
For example, a higher rate taxpayer claiming £10,000 mortgage interest relief currently gets the equivalent of £4,500 lopped of his tax bill. By 2020, this will drop to £2,000 while mortgage rates are expected to rise, increasing the amount of interest paid on buy-to-let loans.
Osborne explained the move was meant to level the playing field between first time buyers and wealthier landlords, but he may well have made highly leveraged property investments unviable for some.
Another lucrative allowance swept away in the Summer Budget was 10% Wear-and-Tear paid as a percentage of net rents on furnished buy-to-lets regardless of whether the landlord replaced any furnishings.
From April 2016, this allowance is replaced by a claim-as-you-replace allowance only due when cash goes out as an expense.
Home owners who let furnished rooms to lodgers were the big Budget winners.
Rent-a-Room Relief which has stuck stubbornly at £4,250 tax-free a year for 18 years has suddenly been unshackled and boosted to £7,500 a year tax-free.
The Chancellor’s thinking would seem to be dangling the tax break will encourage more home owners to open their doors to lodgers as one way to relieve the housing crisis.
Changes in personal and corporation tax rates will also benefit landlords – and one may lessen the effect of losing mortgage interest relief as the Tories raised the higher rate tax threshold from £42,385 this year to £43,000 next year and to £43,600 in 2017 as the first lifts on the way to boosting the limit to £50,000 by 2020.
Meanwhile personal tax allowances are also going up – from £10,600 to £11,000 next year and £11,200 the following year en route to the promised £12,500 by 2020.