Rumours published in the Telegraph on 4 December that Chancellor George Osborne’s Autumn Budget announcement the following day would include a repeal of the ability to offset buy to let mortgage interest against income tax that private landlords in the UK currently enjoy.
Such a move, the Telegraph predicted, could costs UK landlords between £3bn and £5bn per year.
No such announcement was forthcoming; however, the Budget was far-reaching and many of the measures introduced will likely have an impact on landlords.
Capital Gains Tax
Currently a relief on capital gains tax known as private residence relief can be enjoyed by landlords who at any point occupied their rental property as their main and only residence. The period that qualifies for the relief includes the final 36 months prior to selling.
As of April 2014, the private residence relief ‘final period’ will be shortened to 18 months, meaning that many landlords selling properties they have once lived in will have to pay a larger proportion of capital gains tax than before.
However, the tax-free personal allowance (currently £10,900) will increase to £11,000 in April 2014 and £11,100 in April 2015.
In addition, from April 2015, private residential properties owned by foreign nationals and expats will no longer be exempt from capital gains tax.
Other announcements made as part of the budget that landlords may find of interest include:
- The cancellation of the September 2014 Fuel Duty increase and rate freeze for the remainder of parliament
- The implementation of a new online service to support Inheritance Tax administration, eliminating the need for paper forms and snail mail
- The increase of the basic rate tax threshold to £10,000 and the higher rate threshold to £41,865
- The ability of someone who is not liable to pay income tax or not liable to pay above the basic rate to transfer up to £1,000 of their allowance to their spouse or civil partner
- The introduction of a class 3A voluntary National Insurance Contributions from October 2015 that will allow those who will reach state pension age before April 2016 to add to their additional state pension
- Capping the increase in business rates in England during the 2014–15 tax year to 2%
- An additional £300m borrowing allowance for local councils to build more homes, and the expectations that councils will sell the most expensive social housing in order to fund more construction
- The expectation of local governments to freeze council taxes in 2014