George Osborne's new rules impacting properties for let

Following the General Election in May, the Chancellor held a Budget on 8 July 2015. Include within the Budget announcement, there were two issues that will affect property owners letting their properties.

New rules are to be introduced on the deduction of finance costs on rented properties. Currently these are fully deductible against property income. The introduction of the new rules will affect those taxpayers who pay tax at a rate higher than the basic rate of income tax (currently 20%). The new rules will be introduced in the tax year ending 5 April 2018 and will be tapered to allow landlords time to adjust. Assuming the rates of income tax do not change, a 40% taxpayer in 2017-2018 will be able to claim three quarters of their finance costs for a tax deduction at 40% and the remaining quarter at 20%. For the tax year 2018-2019, half of the finance costs will be deductible at 40% and half at 20%. This process continues until the year 2020-2021 onwards when all finance costs for an individual will be deductible at 20%. These proposed changes may lead landlords to re-consider how they hold properties for let.

A further change impacting landlords is that currently landlords are permitted to deduct a “wear and tear allowance” from their property income, irrespective of whether any funds were spent on furnishings. This is an annual deduction, which allows a deduction from taxable income representing 10% of rental income. This deduction will cease with effect from April 2016 and landlords will only obtain tax relief when funds are 

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