Rental Income – April 2016 onwards

If you have rental income or a lodger living in your house then you should be aware of the taxation changes to rental income announced in the recent budget statement.

Rent-a-room : increase in allowance (April 16)

For property owners renting out rooms, there is good news. The rent-a-room allowance, which has remained unchanged since 1997, is to increase from £4,250 to £7,500 from April 2016 to reflect modern rents. This means that you can receive £7,500 before any tax is due. If you receive more than that amount you will have to decide whether to declare the whole amount minus allowable expenses, or simply declare the income over the £7,500 threshold. This change should help to boost the letting of empty rooms and provide an enhancement to incomes.

Buy to Let Owners                                       

Reduction in tax relief on mortgage interest (April 17)

For landlords letting out properties the news is not so good. Firstly, there is to be a reduction of tax relief on mortgage interest which will be reduced to the basic rate. This measure is going to be phased in over four years from April 2017.  Full details of how this is to be implemented is awaited but it is clearly going to increase the tax liability of landlords.

Wear & Tear Allowance no longer available (April 16)

Secondly, the 10% Wear and Tear Allowance will no longer be available from April 2016. So, instead of making a straight 10% deduction of gross rents each year in compensation for replacement of furnishings, only the actual replacement cost will be deductible. It will make sense wherever possible to delay replacements until the next tax year in order to maximise the benefit of the expense.

3% Stamp Duty on additional residential properties (April 16)

Thirdly, an 3% increase in Stamp Duty charge is being introduced on the purchase of additional residential properties from April 16.

Rental income can still be a good investment but careful calculation is necessary in order to ensure that your cash flow works out. If you would like our assistance in reviewing how your situation is affected by the changes to taxing rental income then please don’t hesitate to get in touch.

February 2016