It is that time of the year again, a new budget, new surprises which leave different people either feeling that little bit richer or left out by our government. So what can we gather from the 2016 budget for property investors?
1. Exclusion from the lowering of capital gains tax
There was a lot of debate about a new tax or surcharge being introduced in the latest budget on buy-to-let homeowners. While this was thankfully avoided, property investors were purposely excluded from what turned out to be a surprise and deep cut in capital gains taxes throughout a number of industries. This means that landlords will be effectively paying an additional 8% on the increase in the value of their property assets versus investors in other industries. This is in addition to a number of tax cuts and subsidies put in place to help small businesses, entrepreneurs and individual savers. Generally speaking, CGT was lowered from 18% to 10% for basic tax-rate payers while those in the higher tax bracket saw their effective rate drop from 28% to 20%.
Property sales are excluded from this tax saving where existing rates will continue to apply.
2. Restriction of tax relief for finance costs
From April 2017, over a 4 year period, the amount landlords will be able to claim as relief on interest costs will have an upper limit of the basic tax rate of 20%. This is bad news for high income earners who are currently able to claim tax relief on their mortgage interest at the higher rate of 45%. This may put some in further financial strain as the government continues to penalise so called “mansion” house buyers.
3. Increased stamp duty on your second home
As of April 2016, Stamp Duty Land Tax will be 3% higher for buy-to-let investors and second homeowners although commercial developers are expected to be exempt from this hike. Those buying 15 properties or more are expected to be excluded from the tax hike as the government tries to continue to encourage the development of new housing units throughout the UK.
4. Abolition of the wear and tear allowance
At the moment landlords who are renting out furnished residential properties can deduct 10% of the rental amount they are charging tenants to cover wear and tear costs even though they may not have incurred any expenses on that front. However, as of April 2016 this will be replaced with a policy committing landlords to only deduct actually incurred expenses.
Overall a number of moving parts with a continued emphasis from the government on helping individuals get on the property ladder by limiting the some of the advantages of the buy-to-let market.