Conservatives Set About Raising Increased
Tax Revenue From Landlords
Before the general election the Conservatives were the only political party to not openly target landlords and property investors with manifesto rhetoric, making them the property professional’s choice for power.
Even before the budget statement was delivered by Mr Osborne, there was plenty of press coverage about the generous tax treatment enjoyed by private rental sector (PRS) landlords and buy to let property investors.
So it was of little surprise that the Chancellor chose to turn to the private rental sector in order to raise some additional revenue for the government.
Spotlight predicted that this would happen after the Conservatives were elected, and this year’s summer budget could be just the tip of the iceberg.
George Osborne’s post election Budget announcement, made earlier in July, contained two important changes to buy-to-let taxation that will impact on portfolio landlords and higher rate tax payers.Before the budget announcement, landlords could claim tax relief on the interest on borrowings used to buy property against the income generated, making property investment more attractive to investors over other investment opportunities.
With the UK still seeing low interest rates and high rental yields, property investment encouraged landlords to borrow as much as possible either to increase the size of their rental property portfolios or reduce tax liabilities.
However, Mr Osborne has effectively killed this tax relief after announcing that from April 2017, the government will phase in a reduction in the rate of tax relief on interest to basic rate over four years, for individual investors.
This move could significantly increase tax bills on buy-to-let property investments for higher and additional rate taxpayers, as currently, mortgage interest relief often offsets a large part of the tax liability on rental income.
From October 2016 onwards, the 10% wear and tear allowance for furnished lettings will be abolished and replaced with a new relief that allows the actual costs of replacing furnishings to be deducted, but only when this actually happens rather than a general allowance usually claimed by landlords.
This new tax relief will be worth less than the current allowance and will mean that landlord can only claim for actual expenditure to replace furnishings.
The changes in taxation may deter some investors and it may even raise doubts in the minds of people who want to use pension pots to fund their retirement as they now have to decide if property is still the most appropriate method of investment for their future needs.
There are still options for property investors to get the best from their investments and these are covered here
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