By Andy Noton
The Summer Budget 2015 contained a number of measures targeted at the buy-to-let sector and generally, these were not good news.
The headline announcement was a restriction on the tax relief for finance costs to be phased in over a 4 year period from 2017-18. From 2017-18 a proportion of finance costs (25% rising to 100% by 2020-21) incurred by an individual landlord or partnership will only be available for relief at the basic rate of income tax, which is currently 20%. For higher rate and additional rate taxpayers with rental income this could equate to a significant increase in personal tax liabilities.
Hints were dropped about a reduction of tax relief on finance costs by other parties in the run up to the election but this was not included in the Conservative manifesto, nor was it widely trailed before the Budget.
The Chancellor stated this would create a "level playing field" with owner occupiers, and no longer gives buy-to-let landlords "a huge advantage in the market" compared with owner occupiers. Some coverage after the announcement suggested the additional costs will be passed on to tenants in the form of higher rents but I'm not so sure. Landlords generally charge tenants the market rent for properties and have little scope to pass on additional costs, especially as this change only affects some private landlords. Housing associations, corporate landlords, and private landlords without debt will not be affected and will now have an advantage over their indebted private competitors.
It appears the Chancellor is trying to level the playing field with some of the property market while making it distinctly un-level with other landlords.
However, there are potential planning opportunities such as the incorporation of landlords' property portfolios, especially as the corporate rates of tax will fall to 18% and companies enjoy other benefits such as indexation on capital gains.
To discuss these issues in relation to your own circumstances, or to speak about any other property tax or accountancy matter, please email me or call on 020 7490 7766.