July 2015 Budget
The following article outlines the changes to property income as discussed in the July 2015 budget, and how these changes will affect you are your businesses.
Changes to property
Rent a Room Relief
Rent a room relief is available to householders who rent room(s) in their own home.
He can choose how to be taxed, either anything in excess of the rent a room limit or he can compute the ‘profit or loss’ from his letting activity and be taxed on that instead.
The relief will rise from £4,250 to £7,500 from April 2016.
Wear and Tear Allowances
Currently the taxable profits that arise from the letting of furnished residential property are calculated with a wear and tear allowance which is 10% x rent (less costs such as council tax and water if paid by the tenant).
From 5th April 2016 no deduction will be available for wear and tear allowance.
We will now be using a renewal basis. This basically means that no relief is available for the initial cost of furnishing the property. Deductions can only be taken when the furniture is replaced.
If there is an element of improvement in the replacement then the asset relief will not be available for the element of the cost that relates to the improvement.
Relief will be available on the repair of features fundamental to the property such as baths, sinks, toilets, boilers and fitted kitchens.
There is no limit on the level of furnishings, so the landlord can have a part furnished property and still be able to claim the relief. This was previously not available on the wear and tear allowance.
Restriction of Loan Interest Relief
The measures apply to individuals and trustees, not corporate landlords. Interest costs are associated with residential properties only and do not apply to furnished holiday lets.
Deduction of Loan Repayment
You will be able to deduct the interest on loan repayments for the tax years 2015/2016 and 2016/2017 but it is intended the in future that the tax relief for interest paid on money borrowed is restricted to basic rate only. This change will be phased in over 4 years starting in 2017/18.
- 2017/18 75% of the interest will be fully deductible with 25% allowed at basic rate only.
- 2018/19 50% allowed in full with 50% at basic rate
- 2019/20 25% allowed in full with 75% at basic rate
2020/21 All relief at basic rate only.