Budget Follow-Up: Buy-to-Let Changes

The Chancellor used this year’s Budget to continue a programme of changes to the taxation of residential property other than the main residence, for example rental properties, second homes and holiday homes.

This year a reduction in the rate of Capital Gains Tax from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers was announced for all chargeable gains except those realised on the disposal of residential property other than the main residence.  The Chancellor said this was to encourage investment in companies over that in residential property.

Other previously announced changes now or shortly coming into effect are:

  • For property purchases completed on or after 1 April 2016, higher rates of Stamp Duty Land Tax will be charged on purchases of additional residential properties, such as buy-to-let properties and second homes. The higher rates are 3 percentage points above the current SDLT rates as follows:

Band

Existing residential SDLT rates

New additional property SDLT rates

£0 - £125k

0%

3%

£125k - £250k

2%

5%

£250k - £925k

5%

8%

£925k - £1.5m

10%

13%

£1.5m +

12%

15%

  • Legislation is included in Finance Bill 2016 to repeal the existing ‘wear and tear allowance’ that has historically been available to landlords of furnished properties as a 10% deduction against rental profits, irrespective of the actual costs incurred.  From 6 April 2016, such an allowance will only be given on expenditure actually incurred in maintaining the property and furniture. 
  • Tax relief on mortgage interest at the additional and higher rate is to be phased out over a period of four years starting from 2017/18 so that by 2020/21 tax relief will only be available at the basic rate.  The phase-out of higher/additional rate tax relief will be at 25% per year.  From 2017/18 basic rate tax relief will be given by way of a credit for deduction against any higher/additional rate tax payable. 
  • From April 2016 rent-a-room relief will increase from £4,250 to £7,500 a year.

 

 

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