Property Income – HMRC changes to be aware of!

Wear & Tear Allowance is gone

From 6th April 2016 (1st April 2016 for companies) the 10% wear & tear allowance is no longer available for furnished residential properties. Instead the actual cost of replacing furnishings and white goods used in the property are allowed as a deduction against the rental income. However, only the cost of replacing existing items and disposing of old ones is allowed, the initial purchase of new items will not be allowed.

Items that are entitled to capital allowances will continue to be entitled to capital allowances, such as fixtures integral to property, for example heating, air conditioning and electrical systems.

Where replacement items are not substantially the same as the item they are replacing then the allowed cost of the replacement is restricted to the cost of the same item or an item substantially the same as the old item.

 Restricting Loan Interest Relief

From 6th April 2017 the tax relief available on loan interest on residential property income will be restricted and basic rate tax relief will be given. The new rules will be phased in over a few years and so by 6th April 2020 loan interest will be fully restricted:

2017-18 75% of normal interest – 25% basic rate tax relief
2018-19 50% of normal interest – 50% basic rate tax relief
2019-20 25% of normal interest – 75% basic rate tax relief
2020-21 100% basic rate tax relief

The new rules apply to individuals, partnerships, limited liability partnerships, and trusts. The new rules do not affect property-letting businesses run through limited companies, nor do they impact on furnished holiday lettings, nor does it affect property development businesses.

Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating the profit. The reduction will be calculated as 20% of the lower of:

  • The finance costs not already deducted from income in the tax year (25% for 2017-18, 50% for 2018-19, 75% for 2019-20 and 100% thereafter)
  • The profits of the property business in the tax year
  • The total income (excluding savings and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year.

 Rent a Room Relief Increases

From 6th April 2016 the threshold for rent-a-room relief has increased from £4,250 to £7,500 (£144 per week). The conditions for the relief remain the same, these can be found here:

Property Allowance

From 6th April 2017 there will be a new £1,000 property allowance. The allowance is aimed at the occasional or lower gross rentals and will allow landlords with gross rent below £1,000 to receive it tax free and without the need to declare it. If the gross rental income is in excess of £1,000, the rental profit can either be calculated by deducting expenses in the normal way or simply deducting the £1,000 allowance instead.

If you would like any further information please contact us on 01229 813388 or email lucy@tipayroll.co.uk

Have a great weekend!

Lucy



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