From 6 April 2016 a number of changes affecting the taxation of rental income take effect and landlords may need to take action to help minimise the impact upon their tax position going forward.
The main changes taking effect are as follows:
● a 3% SDLT surcharge will apply to the purchase of second properties, including buy to let properties. This change will add an additional £4,500 of stamp duty to the purchase of a second property costing £150,000.
● at present a taxpayer enjoys full tax relief on mortgage interest paid in connection with the purchase of a rented residential property at their top rate of tax. This relief is being phased out over 4 years from 2017/18 for higher rate taxpayers so that in the future everyone will only receive tax relief at 20%.
● From April 2016 the rates of capital gains tax payable have been reduced to 10% and 20%. However gains arising on the sale of residential property are subject to an 8% surcharge which means no change for gains arising on residential properties which aren’t your principal private residence.
● Previously landlords renting furnished residential properties were able to claim a 10% wear & tear allowance even if no expenditure had been incurred during the year. From
April 2016 the wear and tear allowance will be replaced with a relief that allows landlords to deduct the cost they actually incur on replacing furnishings in a property.
Many of these changes affect higher rate tax payers, therefore if you can reduce your total taxable income below the higher rate threshold by means of pension contributions you may reduce the impact of some of the measures outlined above. If you believe you may be affected by the changes outlined above please do not hesitate to get in touch so that we can undertake a review of your tax position and advise on steps which you may be able to take in order to mitigate any adverse impact upon your tax position.
Ronan McGuirk is a Chartered Tax Advisor, a Chartered Accountant and is Tax Director at ASM Chartered Accountants Newry and Dundalk.
ASM has a further four offices; Belfast, Magherafelt, Dungannon and Dublin. Ronan can be contacted by phone at 028 302 69933 or by email ronan.mcguirk@asmnewry.com.
Visit www.asmaccountants.com for a full list of services.
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