BUDGET CHANGES – IMPACT ON LANDLORDS
In yesterday’s budget, the Chancellor announced what appeared to be a major crackdown on generous tax relief for landlords, but on further inspection and in reality, the new restrictions should have a minor impact.
The scaling back of the tax breaks starts in 2017 and the scaling back of tax relief on mortgage interest payments does not fully hit until April 2020.
Thornley Groves Estate Agents work closely with Lomond Mortgage Services who have provided a calculation to better understand the impact of the changes – see below
Using an example of a £150,000 property with a £100,000 buy to let mortgage, the figures calculate as follows:
With a typical 3.5% interest rate the annual interest cost that the landlord can offset against their tax bill is £3,500.
So, for a 45% tax payer, that is saving them £3,500 X 45% = £1575 in tax.
If they are a 40% payer, the saving is £3,500 X 40% = £1400.
And for a basic rate payer, the saving is £3,500 X 20% = £700.
The new rules from 2020 mean everybody will only be able to offset the £700 regardless of their tax status – hence 40% payers will lose out by £700 and 45% payers by £875.
In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings.
Here at Thornley Groves we believe this to be a good thing as it will encourage landlords to repair and renew as it will give full and not partial tax relief.
For independent mortgage advice visit www.lomondmortgages.co.uk or email [email protected] or Call 0161 942 4145.
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