Private landlords – forthcoming changes from 6 April 2016

Landlords of furnished, residential property will likely see an increase in their tax payments when the present 10% wear and tear allowance is replaced by a more restrictive replacement cost relief from April 2016.

These are the reliefs that compensate landlords for replacement of furniture and some fittings. In most cases landlords will be out of pocket.

Landlords who add to their property portfolios from April 2016 will suffer an increased Stamp Duty charge. From this date, buyers of second homes and buy-to-let property will face higher SDLT bills. In some cases, up to three times the present charge.

Next year, from April 2017, tax relief on loan interest will be gradually restricted to the basic rate. This will seriously impact the ability of landlords with high debt to property values to maintain their property holdings. Landlords that are presently basic rate taxpayers may even find themselves paying tax at higher rates; this due to the gradual add back of actual loan interest paid and the deduction of lower tax credits.

What to do?

Landlords should delay any further purchases of replacement furniture until after 5 April 2016. In this way their claim for the wear and tear allowance 2015-16 will be unaffected and next year they can claim the new replacement furniture relief.

Landlords considering new property acquisitions should consider bringing forward the completion date prior to 1 April 2016.

Finally, all landlords with high borrowings should start planning now for the loss of tax relief in the coming years on their interest payments.