Buy-to-let changes 2016: what you need to know

Buy-to-let news is coming in hard and fast, and we’re only halfway through the year. Here are all the changes that have been made so far that will impact those who own rental properties or are planning to enter the buy-to-let market.

Stamp duty

Earlier this year the Government announced it would be increasing stamp duty for those buying second homes, including buy-to-let properties. As of April this year, landlords have to pay a stamp duty surcharge on buy-to-let homes of three percentage points above the previous rates.

For example, if you bought a second property before 1 April 2016 for £500,000 you would have paid 0 per cent stamp duty on the first £12,000, 2 per cent on the next £125,000 and 5 per cent on the remaining £250,000, which works out as £15,000 in total. The new rates are 3 per cent, 5 per cent and 8 per cent respectively, which would double the amount of tax payable on this property to £30,000.

Wear and tear

April this year also saw the implementation of the new rule that means landlords can only claim for wear and tear costs that have actually been incurred.

Under the previous rules, landlords were allowed to deduct an annual allowance from their taxable profits for wear and tear, regardless of what was actually spent. Now you will have to provide itemised receipts if you wish to have the costs deducted from your tax.

Mortgage interest tax relief

Another unpopular measure announced by George Osborne was a change to landlord tax relief.

It means that landlords will only be able to claim the basic rate of tax as relief, regardless of which tax bracket they come under. For those who pay basic rate tax anyway there will be no change, but as many landlords fall into higher tax brackets this could have a serious impact on their income.

At the moment landlords can claim back a percentage of their mortgage interest costs equal to the percentage of tax they pay, so those who pay basic rate tax can claim back 20 per cent of the mortgage interest costs, while those in the highest tax bracket can claim back 45 per cent. When these changes are implemented, the limit for the amount landlords can reclaim will be set at 20 per cent for everyone. The change will be phased in over a four year period, starting in April next year.

However, those who have a lodger or wish to rent out a room on a casual basis - through AirBnB, for example - will face no tax on the first £7,500 of their income. Before April, the amount had been frozen at £4,250 since 1997.

House prices

According to the Halifax House Price Index house prices are up 8.5 per cent since last year, as of July 2016. There is a lot of speculation about how house prices will change in future, but what we do know at the moment is that the average price of buying a house in the UK is now £215,582, up from £211,868 in the first quarter of the year.

While house prices have continued to rise, the annual growth of 8.5 per cent is actually the slowest rate of growth since the third quarter of last year.

Capital gains tax

As part of the 2016 budget the Chancellor announced a cut to capital gains tax, but this cut will not be applied to landlords.

The basic rate of capital gains tax has gone from 18 per cent to 10 per cent, while the higher rate has fallen from 28 per cent to 20 per cent. Profits made from assets such as stocks and shares will now be subject to these lower rates of tax, but the same is not true of properties. Landlords (and homeowners) who sell their properties will now effectively be subject to an eight per cent surcharge that those selling other assets won’t face.

With a new prime minister coming in and a new cabinet being appointed, what changes in buy-to-let do you expect to see next? Tell us in the comments.

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