The July budget headline that mortgage interest relief for private landlords is to be restricted to the basic rate of income tax has perhaps overshadowed another announcement by the Chancellor that is going to leave landlords reeling.
By April 2016, the current system whereby landlords of furnished residential properties are allowed to deduct 10 per cent as a tax break for wear and tear will be no more. Instead, only actual costs incurred will be deductible.
Whilst it is not yet clear how the new fair wear and tear system will work in practice, there is a glimmer of good news for residential landlords, as the Government looks set to reform how they can account for the costs incurred in maintaining and enhancing their rental properties.
At the moment, the issue the Government has is that the law dictates landlords are able to offset their tax liability by 10 per cent, regardless of whether they spend money on improving their rental properties. Feeling this is unfair and out of line with other business types, they are changing the rules. Landlords will still be able to deduct costs, but they can only be genuine ones.
This announcement, alongside the headline plans to decrease tax relief on buy to let mortgages down to the basic rate over the next four years, is no doubt going to have you thinking of ways to recoup losses if you are a landlord.
Why not discuss the issue with your bookkeepers? They’ll be able to put together cashflow forecasts and profit and loss projections to help you fathom your way through the forthcoming changes, and make informed decisions along the way.