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Tax and property: important changes ahead

Property tax reliefs are set to change - the Government has announced a number of alterations to these reliefs, which are due to come into force over the upcoming years. Some of the key reforms are explored within this hot topic.

Rent-a-room relief

Owner occupiers and tenants who let furnished rooms in their only or main residence may claim rent-a-room relief.  Under the rent a room scheme, income from letting furnished rooms in your main residence will be exempt from tax if the gross annual rent does not exceed £4,250 (£2,125 if you share the income) in 2015/16. However, from April 2016 the level of rent a room relief will be increased to £7,500 per year.

If you are letting to lodgers who live as part of the family, there will be no loss of the capital gains exemption. Otherwise, there may be some restriction.

The move is expected to benefit those who rent rooms to long-term lodgers, and also short term stays. Users of online room letting platforms, such as Airbnb, will qualify for the relief.

The wear and tear allowance

For furnished residential lettings an allowance is currently available to cover wear and tear on certain items (such as suites, beds, carpets, curtains, linen, crockery, cutlery, cookers, washing machines and dishwashers). For such items it is possible to claim an annual wear and tear allowance equal to 10% of the rents received (less certain expenses). However, subject to consultation, from April 2016 the wear and tear allowance will be replaced with a new relief that allows all residential landlords to deduct the actual costs of replacing their property furnishings.

HMRC has also proposed extending the tax break to properties regardless of whether they are partly furnished or unfurnished. This means that a broader number of claimants will benefit, as well as ensuring a more consistent way of calculating profits.

The new furniture replacement relief does not apply to furnished holiday lettings and letting of commercial properties, because those businesses receive relief through capital allowances. However, owners of all other residential properties can claim a deduction for the replacement cost of furniture, furnishings, appliances and kitchenware.

Landlord tax reliefs

In a move which Chancellor George Osborne promised would 'level the playing field', landlord tax reliefs will see a phased change over four years from April 2017. Currently, buy-to-let landlords are able to claim tax relief on monthly interest repayments at their top level of tax - up to 45% - and this is to be eventually reduced to the current basic tax rate of 20%.

Stamp duty land tax on additional properties

Stamp Duty Land Tax (SDLT) on the purchase of residential properties is charged on the portion of the purchase price which falls within set rate bands. The new system was introduced following 2014 Autumn Statement.

However, in the 2015 Autumn Statement, the Chancellor announced that higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy-to-let properties and second homes. The higher rates will be three percentage points above the current SDLT rates.

We can advise on a range of issues relating to tax and property, and can help you plan to ensure you are making the most of the available reliefs.