Residential property income - tax changes ahead

The details

The change will be phased in from 2017/18, with transitional rules until 2020/21. During the transitional years, the amount of the tax deduction from rents will reduce and the proportion of loan interest that will only qualify for basic rate tax relief will increase. In the transitional years landlords will be able to claim:

  • 2017/18 - 75% of the interest against rents, 25% basic rate tax relief

  • 2018/19 - 50% of the interest against rents, 50% basic rate tax relief

  • 2019/20 - 25% of the interest against rents, 75% basic rate tax relief

Ownership through a company

This change will have no direct impact on those who own and let residential properties through a company: companies will continue to deduct loan interest as a business expense and get effective relief at up to 20%

Wear and tear allowance

The Government is consulting on a proposal to remove the established system of allowing a fixed annual deduction for wear and tear on soft furnishings and moveable furniture used in a furnished letting business (10% of the rents less costs normally paid by the tenant) from April 2016. For 2016/17 onwards, landlords would only be able to claim expenses actually incurred during the tax year

Rent a room relief

The annual amount that landlords can receive from letting a room in their own home before tax becomes payable is to be increased from £4,250 to £7,500 (£144 per week) from April 2016 onwards

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