Landlord tax changes: the who, what, where and why

Got questions about the recent landlord tax changes? We’ve got you covered.

Landlord Advice

2 June 2017

Since the UK Budget of summer 2015, a raft of new property tax changes have entered into law, many of which directly affect residential landlords.

Here, we go through these changes – which all landlords should understand – and their implications both for the industry and your finances, so you can get to grips with the new laws.

We’ll explain who is affected, what’s changing, when it’s all happening and what you might need to know. Ready to get started?

Stamp duty surcharge

Who: Landlords who already own at least one property and are buying additional ones.

What: Stamp Duty Land Tax (or SDLT) is a tax payable on properties over £125,000. For second properties, a flat rate of 3% is now added to the basic stamp duty, regardless of the purchase price.

When: All property purchases completed after 1 April 2016.

Where: England, Wales and Northern Ireland.

Why: By increasing the cost of buy-to-let properties, the government hopes to make more homes available to first-time buyers. It will also use the proceeds to build more affordable housing.

Restrictions to finance cost relief

Who: Residential landlords who let properties as an individual, partnership or trust in the UK. There’s no change for limited companies or those renting out furnished holiday homes.

What: Landlords could previously deduct finance costs like mortgage interest from their earnings to reduce the income tax they needed to pay. This is being replaced with an income tax reduction of 20% of either your finance costs, net property earnings or adjusted total income – whichever is lowest.

When: The change is being phased in from April 2017, with the old and new systems proportionally applied until the 2020-21 tax year.

Where: All landlords who let properties and pay income tax in the UK are affected, with increased tax liabilities likely for people whose earnings are in the higher bands of income tax.

Why: To stop landlords with the highest incomes receiving the most generous tax relief.

Changes to the wear-and-tear allowance

Who: All individuals, partnerships, trusts and businesses renting out residential property in the UK.

What: The 10% of net annual rent previously set aside as an allowance towards replacing or repairing furniture and goods is being replaced with a tax relief on the actual cost of replacing items.

When: Applies to all expenditures after 1 April 2016.

Where: All landlords letting and paying income tax on UK residential property.

Why: To make tax relief on replacing furnishings more accurate and fairer.

Property developer tax

Who: Property developers and traders, excluding those who buy properties primarily to rent them out – so this will exclude most landlords.

What: When a property is purchased solely to realise a gain from a future sale, either through price increases, development or renovation, any profits made will be charged as income tax, not capital gains tax.

When: Since April 2016

Where: UK-wide

Why: This was simply a clarification to ensure developers paid income tax on their earnings, rather than capital gains, which should apply to residential landlords who sell their properties.

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