Alison Robinson, Partner in the Landed Estates and Rural Business Group of UK top 20 Chartered Accountants Saffery Champness, comments:
Mortgage interest relief for buy to let property:
Restricting mortgage interest relief on buy to let properties from April 2017 will hit cashflows for landlords. This measure is intended to achieve a level playing field between those buying residential property as an investment and those buying for a home. To this point buy to let investors have had a distinct advantage being able to claim tax relief on interest at up to the top tax rate of 45 per cent. This will reduce over time to a flat 20 per cent for everyone in 2020/21.
Also, landlords of furnished lettings will no longer be able to claim wear and tear allowance, but will instead be able to deduct the cost of replacing furnishings from April 2016. This is a fairer way for many to obtain their tax relief, based on actual costs incurred, although does add a layer of complexity in record keeping.
Annual Investment Allowance
This currently is at a limit of £500,000 and its reduction was anticipated – it was originally intended to reduce to £25,000 in January 2016. However it now only reduces to £200,000 meaning that those who were unable to invest in plant and machinery at the current generous rate will still have the benefit of a healthy tax free ceiling after January next year. This will now be a permanent rate and removing the recent fluctuations in the rate will provide much needed stability so expenditure can be planned for more easily.
Inheritance Tax
The inheritance tax increase for property and the family home was to be anticipated, and will be a welcome relief to many. However, many will be disappointed that the band will only be introduced from April 2017 and will be £100,000 when first introduced, increasing to £175,000 from April 2020.
Both the taper at £2m and the relief for those who need to leave homes or downsize now helps to resolve many concerns raised with the introduction of the additional nil rate band.
Many will be further disappointed that, whilst the additional nil rate band is introduced, the inheritance tax nil rate band of £325,000 is to remain frozen until April 2021, an extension from April 2018.