Whilst some are breathing a sigh of relief that at least there is still SOME tax relief on rental income rather than it being completely abolished, I think the majority of Landlords will still be with heavy heart today at the loss of tax relief on the interest element of their BTL mortgages, and the less publicised, 10% tax relief on wear and tear for furnished properties as of next year.
So with 2 furnished properties on interest only mortgages, I feel your pain.
In a nutshell, rental income will instead be taxed at the basic rate of 20% and landlords will only be able to offset actual expediture during a tax year, rather than benefitting from the wear and tear allowance too.
Thankfully, the basic rate of tax will be implimented in stages over almost 6 years, so there is time for us to prepare for these new tax changes. With a bit of proper tax planning there shouldn’t be too much of a shock on the tax bill front when it does come into full force in 2020-21. The wear and tear allowance will be taken away by next year, so for those with furnished properties, maybe it would be worth letting unfurnished and benefitting from the council tax exemption instead … before they take that away too!*
Overall though, it is another blow to the BTL investor market. It is dissapointing that on one hand the government are keen to get Landlords to invest more into their properties, invest in more properties to let to keep rents down, but then they take away the available cash flow to do this. It makes for an increasingly unappealing industry to invest in and one with poor cash flow. It doesn’t make sense!
The Buy to Let industry is a business, Landlords are business owners and BTL mortgages should essentially be classed as business loans, which should have tax relief on them.
With yields (on decent properties that tenants what to rent) struggling to achieve over 5.5% this will either drive rents up or deter Landlords investing in their properties, or both.
Once my accountants phone line has stopped being engaged (and I get a chance to speak to him!), we will publish more information on this topic.
http://www.propertyindustryeye.com/landlords-tax-perk-to-be-reined-back-over-next-six-years/
*Swansea council still offer 6 months exemption of council tax for unfurnished properties per year. Each council have their own rules on this, so if you have property outside of Swansea you may not have any or limitied exeption rights.
