This is something that may affect many of you reading this without you actually knowing about it being changed.
Here at K A Farr & Co, Chartered Accountants in Southport, we’ve analysed everything announced in the first Conservative budget for almost two decades and we feel that you, our clients need to know about the wear and tear tax allowance being abolished.
This will only affect any of our clients who are landlords but it does no harm to let you all know, you may have a friend or family member who is a landlord and they may not be aware of the changes.
No Auto Entitlement
The automatic entitlement that landlords currently have to a 10% tax break for wear and tear of ‘furnishings’ in their properties is to be removed from April 2016.
This change has come about somewhat unnoticed after the Budget headline announcement that mortgage interest relief for private landlords is also to be restricted to the basic rate of income tax.
The changes that the Chancellor has announced will effectively double the cost of borrowing for those paying the highest rate of tax whereas the landlords will have almost six years to prepare for the change.
The 10% wear and tear tax that landlords are automatically entitled to however, is being scrapped from next April. Instead, they will only be able to deduct from their tax bill the costs that they actually incur.
The two measures that have been announced mean that the Government are indeed cutting back on tax breaks for private landlords who argue that they should not be treated differently from other businesses, but whose tax regime arguably sits badly with home owners.
The small print in the Budget which contains the information about the wear and tear tax being abolished, doesn’t exactly state how the new regime will work but it does say: “The Government will also reform how landlords of residential property can account for the costs they incur in improving and maintaining rental property.
“Currently, landlords of furnished properties can deduct 10% of their rent from their profit to account for wear and tear, irrespective of their expenditure.
“This means landlords can reduce their tax liability even when they have not improved the property. From April 2016, the Government will replace this allowance with a new system that enables all landlords of residential property to only deduct costs they actually incur.”
Get in Touch
Do you have any questions about all of the information above? If so, feel free to get in touch with us here at K A Farr & Co, accountants in Southport.
All of our contact details can be found on our contact page here.