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Budget bashes landlords

The Chancellor has not been overly generous to landlords and the buy-to-let sector in his Summer Budget 2015. In the difficult balancing act between balancing the books and encouraging investment in the property sector he has worries on an overheating property market.

Read in full the Summer Budget 2015

The main changes affecting landlords are as follows:

Top rate mortgage interest relief removed

The top rate mortgage interest relief to be removed by 2020, meaning higher rate tax payers will only receive interest relief at the basic rate currently set at 20%. This will effectively double the rate of borrowing for higher rate tax payers according to the Financial Times.

This move, as well as addressing the perceived imbalance between the rental sectors finance and hard pressed homeowners is also an attempt to head off criticisms from ‘generation rent’ that they are being priced out of the housing market because of unfair tax treatments.

Read more on the removal of top rate mortgage interest relief

Scrapping of 10% wear & tear allowance on furnished property

The scrapping of the option for landlord to elect a 10% tax deduction against rental income for furnished property will hit many landlords who have seen this as an automatic 10% reduction in their tax bill. Instead, landlords will have to claim and evidence their costs only when assets are replaced. The saving to the Treasury for this are expected to be £200m a year.

In fairness, this tax break has been used and confused by many landlords many of whom have been tempted to use it despite letting their property on a unfurnished or partly furnished basis.

Rent-a-room allowance increased

The rent a room allowance, which really is used not by landlords but by hard pressed home owners to raise extra cash to pay their mortgage. It’s the airbnb generation in London & beyond will be quietly pleased that they will be able to earn £7,500 rather than £4,250 without paying tax on the income they earn from renting out their spare rooms. Off course it’s debatable how many of these pseudo landlords currently declare any of their income to the tax authorities.

The reduction of social rents by 1% per year

The reduction of rents in the social sector will potential put a very slight downward pressure on rents generally; including the private rented sector. This impact will be marginal but for many of us landlords outside the rental bubble in London deflationary pressures on our lacklustre rent increases.

International landlords get hammered

Mark Pearce, Partner at Thomas Eggar LLP believes that the Summer Budget will seriously impact offshore property owners:

"For the past three years, the Government has increasingly tried to discourage people from buying homes in the UK through non-UK resident companies. Firstly, there was the introduction of ATED and increased SDLT. Next there was an extension of capital gains tax to non-residents owning UK property. Now we have what is likely to be the fatal blow as the Government removes the inheritance tax protection that these companies have historically afforded investors."

In what may well be the death knell for offshore property companies, the Government has announced radical changes that will treat these companies (and other similar structures) as transparent for UK inheritance tax purposes.

The Government is also clearly looking for simplification as, unlike other taxes, there will be no exemptions for rental or development properties, nor will there be a minimum value threshold.

For once, like it or loathe it, the Government has introduced a clear, simple policy which should achieve its aim of removing the final tax benefit of using offshore companies to own homes in the UK.

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