The announcements the Chancellor made relating to rental properties in the 2015 Summer Budget will not have been the best news landlords have heard this year.
Most concerning will be the reduction of tax relief on borrowings for the purchase of a let property.
Currently tax relief is given at the taxpayer’s marginal rate of tax on the mortgage interest element of a loan to purchase a property for letting. However this relief is being severely restricted and by 2020/21 only basic rate tax relief will be given. The change will be phased in gradually with the first year affected being 2017/18. This will be a real blow for higher rate tax paying landlords.
For many years an annual allowance of 10% of net rents was available to the landlords providing furnished accommodation. This was allowed as a tax deduction against rental income and there was no requirement to support the claim with receipts etc. From April 2016 this generous relief has been withdrawn and any expense claims will only be allowed in respect of actual expenditure incurred.
For those that let a room in their own home there is at least some good news. The annual amount that landlords can receive tax-free under the “Rent a Room Scheme” has increased from £4,250 to £7,500.