Property Taxes

The measures impacting landlords are significant, as they affect the purchase price and allowable deductions.

In summary these are:

Restriction on mortgage interest deduction
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their rental profits. The relief in respect of finance costs will be restricted as follows:

2017/18 75% allowed 25% basic rate
2018/19 50% allowed 50% basic rate
2019/20 25% allowed 75% basic rate
2020/21 Nil 100% basic rate

You can view an example of the tax implications for a basic and higher rate taxpayer.

The end of wear and tear allowance
From 5 April 2016, the wear and tear allowance, and the renewable allowance for property business, will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year. Capital allowances for furnished holiday lets will not be affected.

Higher stamp duty land tax (SDLT) to additional residential properties
The higher rates (3% above the current SDLT) will apply to additional residential properties purchased in England, Wales and Northern Ireland on or after 1 April 2016.

Band Existing residential SDLT rates New additional property SDLT rates
Up to £125K 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
Over £1.5m 12% 15%

There are currently four exemptions from the additional rate:

  • replacing a main residence
  • transactions under £40,000
  • purchase of a non-residential property
  • bulk purchase of at least 15 residential properties.

Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property.

SDLT: for non-residential property
The measure changes the rules for calculating the SDLT charged on purchases of non-residential properties, and transactions involving a mixture of residential and non-residential properties. At present, for purchases of freehold, the assignment of an existing lease – and for the upfront payment (premium) on a new leasehold transaction – SDLT is charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls.

On transactions on and after 17 March 2016, SDLT will be charged at each rate on the portion of the purchase price that falls within each rate band.

The new rates and thresholds for freehold purchases and leases premiums are:

Transaction value band Rate
£0–£150,000 0%
£150,001–£250,000 2%
£250,000+ 5%

The new rates bands and thresholds for rent paid under a lease are:

Net present value of rent Rate
£0–£150,000 0%
£150,001–£5,000,000 1%
£5,000,000+ 2%