Summer Budget 2015 – Tax changes for landlords

Chancellor George Osborne’s Summer Budget was loaded with tax changes – and several will have a major impact on buy to let landlords.

Just how far the tax changes will bite depends on if the landlord trades as an individual or a company.

Here are the major changes:

  • Income Tax personal allowance will rise from £10,600 to £11,000 from April 6, 2016 and £11,200 the year after. In future years, the personal allowance will automatically increase in line with the new National Living Wage to make sure those on the lowest pay stay out of the tax net.

The Tories pledged to put the allowance up to at least £12,500 by the end of this Parliament

  • As a first step in raising the higher rate (40%) income tax threshold to £50,000 by 2020, from April 6, 2016, the threshold will go up to £43,000 and then £43,600 in 2017-18.
  • The manifesto pledge of a five-year tax rate lock for income tax, capital gains and inheritance tax was confirmed
  • Tax relief on buy to let mortgage interest will be restricted to 20% by 2020. This means landlords paying income tax at 40% or 45% will only be allowed to claim this relief at 20%
  • Wear and Tear Allowance for furnished buy to lets will be scrapped in April 2016 in favour of a new pay-as-you-go allowance that allows landlords to claim for renewing furnishings on replacement
  • Rent-a-Room relief gets a much overdue overhaul, with the tax-free limit for taking in lodgers boosted from £4,250 to £7,500 a year
  • Insurance Premium Tax rises to 9.5% across the board – including cover for buildings, landlord contents and other business policies
  • Annual Investment Allowance – a tax relief for investing in capital assets for a property business is pegged at £200,000 a year from January 1, 2016.
  • No changes to capital gains tax or stamp duty

For landlords trading as limited companies, some additional tax changes were announced:

  • Employment Allowance which reduces national insurance contributions for companies is axed for single director businesses
  • Corporation Tax has will drop from the current rate of 20% to 19% in 2017, and then to 18% in 2020
  • Dividend tax credits face restructuring from April 2016.

The first £5,000 paid will be tax free, but shareholders will pay income tax according to their marginal rate on any extra payments:

Basic rate taxpayers – 7.5% (Down from 10%)

Higher rate taxpayers – 32.5% (unchanged)

Additional rate taxpayers – 38.1% (unchanged)

  • New mortgage tax relief rules will also apply to companies with buy to let borrowing

“The tax changes are aimed to make a fairer tax system,” said Osborne. “I specifically want to make the playing field more level between first time buyers and landlords and to address the unfairness in property taxation.”

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