There are a number of BTL changes concerning property investors and landlords today in the current market.
The biggest and more detrimental change is the increasing restrictions on the amount of tax relief claimable against mortgage costs which became active April 2017. It will be phased in over 4 years, ultimately limiting relief at the basic rate of tax (currently 20%) from April 2020 onwards. Higher & Additional Rate taxpayers will now see a significant rise in their tax liability. The result being a reduction in their net rental income after tax and in some cases leading to net annual losses instead. See property market for 2016.
Wear & Tear
Landlords were able to claim tax relief on 10% of their rental profits as ‘general wear & tear’, regardless of the actual expenditure in this area. From April 2016, this allowance was abolished and has been replaced with “Replacement of Domestic Items Relief”. In this circumstance evidence now needs to be provided of any replacement costs incurred in order to claim relief.
The government introduced an additional 3% (as per the autumn statement 2015) was added to the usual SDLT rates for the purchase of additional residential properties since April 2016 (including second homes and buy-to-lets).
The Bank of England introduced new rules for Mortgage affordability testing (up to 140% rental). Plus, Interest Rate Affordability Stress Testing for BTL mortgages (2% above lending rate) became mandatory from January 2017.
Letting Agents will be banned from charging fees to tenants after plans announced in the 2016 Autumn Budget Statement. Exact rules have yet to be finalised, but this change will result in higher costs to Landlords and therefore their tenants.
What can you do?
The new & incoming changes to BTL related Reliefs and Allowances will directly impact every Landlord (some more than others). Pro-active lenders are contacting landlords and educating them with regards to these changes.
A landlords’ individual circumstances will determine how they go forward, i.e. income (tax bracket), number of BTLs, level of gearing etc.
Landlords with unencumbered properties will see little effect with these changes as they will not have any mortgage interest to write off.
What are you planning for your current and future property investments?