Through 2015 the Chancellor announced a number of potentially significant changes to tax affecting landlords, which will begin to come into effect from April 2016.  This article is a summary of the main changes.

Potentially the most significant in terms of one-off impact is a 3% stamp duty surcharge on buying second or subsequent properties.  This means a £100,000 property purchase will attract £3,000 stamp duty (where for someone buying it as their primary residence it would be below the stamp duty threshold).  For a £250,000 property purchase, the increase is £7,500 to give landlords buying these properties a total stamp duty bill of £10,000.  The only way to avoid this charge is to complete your purchases before April 2016.

Another change coming in from April 2016 is the abolition of the Wear and Tear allowance.  The allowance gives landlords of furnished residential properties a reduction in their taxable profit equivalent to 10% of their rental income (less certain items such as household bills included in the rent figure).  Until the end of this tax year, the allowance can be claimed even where no new expenditure has been incurred in the year.  Going forward, landlords will be able to claim actual costs incurred on replacing furnishings.  This means, as a landlord, if you can put off the replacement of any items of furniture until after 6 April 2016, you will be able to claim tax relief on the cost.  If you spend the money before 6 April 2016, you wont. 

A further change which will impact all higher and additional tax rate paying landlords with mortgages against their properties is the phasing in of a cap on mortgage interest relief.  Currently mortgage interest relief is effectively given at a landlords marginal rate of tax (that is 20% for basic rate tax payers, 40% for higher rate tax payers, and 45% for additional rate tax payers).  Between 2017/18 and 2020/21 this will change so that all mortgage interest relief is at 20% only.  Where landlords have significant mortgages against their properties, this will lead to potentially large increases in tax bills.

Again, slightly further away but worth being aware of, is a change in when landlords will have to pay capital gains tax bills.  Currently capital gains tax needs to be paid by 31 January following the end of the tax year in which the chargeable gain arises.  So if you sell a house and make a capital gain any time from 6 April one year to 5 April the next, you get almost 10 months to report and pay the tax.  From April 2019, landlords will have to report and pay capital gains tax within 30 days of selling a property.  

With so many changes to the taxes specifically affecting landlords, some will want to think about whether their portfolio will remain profitable, or whether they want to change it.  Would splitting the ownership with a spouse make any difference?  Would changing the ownership structure to a company rather than an individual be advantageous?  Before making any decisions you may want to speak to an accountant or financial advisor to help ensure all aspects have been considered.