Chancellor George Osborne unveiled a wealth of new tax measures for property investors in his Autumn Statement and subsequent Draft Finance Bill,many of which will come into force in April of this year.
While there are a few small measures that will bring relief to investors, many of the changes will have an impact and action will need to be taken to prepare to meet the new regulations.
Here we break down the changes you need to consider, whether you are thinking of investing in property or already have your own investment portfolio.
Increase to Stamp Duty Land Tax (SDLT)
From April 2016, investors who are purchasing a property to subsequently let out to tenants will see a sharp rise in SDLT.
As well as paying the standard rate of SDLT, landlords will also be hit with an additional 3% charge on the full purchase value when acquiring a property. Putting this into perspective, a property costing £200,000 would normally incur SDLT of £1,500, however with the new charge; this will rise significantly to £7,500 and that has to be factored into any investment decision.
Nevertheless, it is important to remember that SDLT is a deductible cost when calculating any future taxable gain on sale of the property.
Relief on buy to let mortgage interest restricted
The tax relief available on mortgage interest is to be restricted to the basic rate of tax. This is to be phased in over a four year period starting from April 2017.
Within the four-year transition period, the amount of total interest costs eligible for a full deduction against rental income will be reduced by 25% per year until 2020/21, where relief is fully restricted to basic rate relief.
However, if the property is owned through a limited company, these changes will not have an impact and the interest element will continue to receive tax relief as normal.
Wear and tear relief is being scrapped
Wear and tear relief, normally available for landlords who are letting out a furnished property, is to be scrapped from April 2016. It is to be replaced by a deduction-based relief, which allows the actual cost of replacing furnishings to be claimed.
If similar to the old non-statutory renewals basis, the cost of original furnishings will not be allowable, however the cost of replacing them will be.
Increase in rent-a-room relief
The relief available to homeowners who rent out a room is set to increase from £4,250 to £7,500.
Accelerated tax on property sale
Currently on the sale of a residential property, individuals have up to 21 months to pay across any necessary Capital Gains Tax (CGT) to HMRC.
The government has announced that, by 2019, CGT payments will be accelerated to within 30 days of the disposal, meaning that investors will have to act swiftly in order to avoid any penalties.