[11.03.2016]

SMALL BUSINESS TAX ATTACK #4

 

 

Small Business Tax Attack Blogs 2016 #4

 

RENTAL INCOME

 

 

STAMP DUTY SURCHARGE

Buy-To-Let properties, along with any other second properties (including the shared purchase of a house for your children) will be hit with an additional 3% of stamp duty from 1 April 2016, seriously denting the viability of many rental properties.

WHAT CAN YOU DO ABOUT IT?

There isn’t a great deal you can do about it.   You’re running out of time to purchase a property before the new tax kicks in. Prices could also be boosted in the short-term as landlords try to beat the deadline. With property being such a major investment, maybe it’s best to wait and see what happens.  Even a modest drop in prices would more than make-up for the extra stamp duty.

 

NO MORE WEAR & TEAR ALLOWANCE

Another blow on rental income from 6 April 2016 is the withdrawal of the 10% wear & tear allowance for furnished rental properties. From that date, landlords can only claim the cost of actual replacements and the initial furnishing of a property prior to renting it out, cannot be claimed.

WHAT CAN YOU DO ABOUT IT?

There is a short-term opportunity, which is to delay the purchase of replacement furniture and repairs until the new tax year, if at all possible.  You will be able to claim the wear and tear allowance for 2015/16 and the actual replacement costs in 2016/17.

 

INTEREST RELIEF RESTRICTION

The restriction of mortgage interest relief for higher-rate taxpayers has attracted plenty of headlines.  But nothing will change until April 2017 and the changes are being phased in over 4 years so will not take full effect until April 2020.  The way this restriction will operate is even worse than it sounds, as it will prevent many landlords from making taxable losses, which means profits will be taxed harder.

WHAT CAN YOU DO ABOUT IT?

Well, there are always options but they come with risks of their own.

 

You can set up a company but there are a number of complications (how to get the property into a company without having to pay stamp duty again and maybe capital gains tax too, double tax whammy when you sell as the company will pay tax on the capital gain and then you will still have to get the funds out of the company, possible complications in transferring  mortgages, and so on).

 

You could exit the rental property market, but if everyone does that at the same time, prices are likely to be depressed.

 

In short, because there are so many variables and each situation is different, it is important to seek advice and get a personalised review of your rental business.

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