2016 saw a considerable number of property taxation changes hit the buy to let investor and unfortunately the changes don’t stop there.
As from the 6th April 2016 the purchase of an additional residential property has been liable to a stamp duty supplement of 3% in addition to the current stamp duty land tax rate. The wear & tear allowance was abolished and replaced with a ‘replacement of domestic items relief’ and the reduction in capital gains tax rates was denied to the residential landlord.
As from 6th April 2017, we will see probably the most significant change begin to take effect, the restriction to financial costs.
This restriction will have a three-year phased introduction and will see the deduction available for mortgage interest and finance costs restricted to the basic rate of tax.
Year % of costs deducted from profits % of costs available as a basic rate reduction
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 0% 100%
Unfortunately, due to the method of application of this new measure more tax payers may be effected than is first thought. Many current basic rate taxpayers, may become a higher rate taxpayer once mortgage interest is restricted in the rental accounts.