The Summer Budget 2015 contained big changes to welfare, the minimum wage, the way dividends are paid and a lot more. But, as is often the case with major political events, it can sometimes be the changes that don’t make the front pages which have longer lasting effects.
During his first fully Conservative Budget statement, Chancellor George Osborne unveiled a range of measures aimed at landlords. The reduction in mortgage interest rate relief for buy-to-let landlords and the rent-a-room threshold increase understandably dominated the headlines. However, landlords will also be affected by changes to the wear and tear allowance – a point that slipped under the radar amid the other announcements.
A bit of context
The business of renting out furnished properties to different groups of people often involves the need to repair or replace furniture due to damage or age. The wear and tear allowance gives landlords renting out furnished properties the chance to claim tax relief against the damage or wear on their furnishings without incurring costs. They can claim an annual allowance of 10% of the rent they charge, whether or not the actual costs are higher or lower than in previous years.
The allowance is not available to those who rent partly furnished or unfurnished property, and is dependent on the rental income being received. This created a situation where areas with higher rent end up with a higher tax break than similar properties in other parts of the country. Understandably, some people thought that a system that favours landlords owning property in regions with higher rents was not the right way of doing things.
What is changing?
The new system looks to shift the emphasis of the allowance towards the actual level of costs incurred by landlords.
The 10% allowance will be replaced by a new relief that will allow landlords to deduct their costs directly from their tax bill.
The old wear and tear allowance will be replaced with the new relief in April 2016. In a consultation document published in July 2015, the government confirmed that:
“The relief will apply to landlords of unfurnished, part furnished and furnished properties. The relief will not apply to ‘furnished holiday letting’ businesses and letting commercial properties, because these businesses receive relief through the capital allowances regime.”
The government hopes that the new proposals will mean a system that is consistent and fair, as well as reducing the number of tax rules that apply to residential landlords.
If you are unsure of what these changes mean for you, or you want to discuss any of the measures contained in Summer Budget 2015, you can contact Alan Mitchell at email@example.com or call 01383 628800.