Tenants get the right to sub-let without permission
The Chancellor’s final budget before the election revealed a big surprise for landlords and some changes that may mean landlords are better off. Tax expert Steve Sims reports.
Chancellor George Osborne's last budget revealed a major surprise for landlords and a few tax changes that might put a few pounds extra in the bank.
A measure to make sub-letting private rented homes as part of a new policy to encourage a sharing economy was the biggest announcement for property investors. New laws will remove restrictions in tenancy agreements that bar tenants from taking in lodgers or housemates without the permission of their landlords.
The move was not fully explained in papers published with Osborne’s budget speech, so property investors will have to wait for the publication of consultation documents. What is known is that tenants will have the right to share their homes without permission while on a fixed term assured shorthold tenancy, and that the consultation could extend this to a statutory periodic tenancy as well.
The Chancellor wasn't clear whether the new law will also apply to leasehold flats. However, if the proposal is implemented landlords will need to speak to their insurer as it may well be that subletting by their tenants invalidates their landlord insurance policy.
Several changes to taxation relating to landlords were announced:
Income tax changes
Landlords will pay a little less tax as income tax personal allowances and the thresholds for paying higher rate tax rise over the next two tax years.
As of April 6, 2015, landlords can earn £10,800 from all sources before paying income tax. The allowance increases to £11,000 in April 2017.
The higher rate tax threshold nudged up from £41,865 to £42,385 in April, then goes up again in April 2016 to £42,700 and £43,300 12 months later.
For the 2016-17 tax year, landlords will pay no tax on the first £10,800 they earn, then basic rate tax (20%) on the next £31,585. They will then pay the higher rate tax on the next £107,615, when the top rate tax of 45% kicks in.
Capital gains tax
Expats disposing of homes in the UK now pay capital gains tax (CGT) on any increase in property values as of April. Any gains already banked in the property value prior to that date are exempt from tax.
Annual Investment Allowance
The Annual Investment Allowance (AIA) allows landlords to write off the cost of buying business equipment and assets up to the value of the AIA in the same year as they are purchased.
This reduces tax paid on profits by the value of any business equipment purchased.
The Chancellor has promised to set the rate higher than the previous low of £25,000, but hasn't yet revealed the annual limit for the next tax year.
The AIA allows house-in-multiple-occupation (HMO) landlords to offset health and safety spending on assets – such as heating, fire alarms and emergency lighting fitted in communal areas – in full against rental profits.
Buy-to-let and HMO landlords who’ve purchased business assets that aren’t used in a specific home can also claim the cost against AIA. This would include equipment such as tools, ladders, trailers, computers, smartphones, and printers with a general property business use.
Digital tax accounts
HMRC is to set up digital tax accounts for 50 million individuals and small businesses.
HMRC will collect personal tax data from a range of sources, such as employers, banks, building societies and pension providers, and automatically work out how much tax should be paid for many individuals.
Small business accounting software will be developed to link into the system, says HMRC.
The aim is to allow people and businesses to pay tax throughout the year and to have a better overview of their finances.
Landlord Energy Saving Allowance (LESA)
The Landlord Energy Saving Allowance (LESA) was scrapped in April.
The provision meant landlords could spend a maximum £1,500 a year on energy saving improvements, such as draught proofing and insulating, on each letting property they owned.
Personal Savings Allowance
The new personal savings allowance allows basic-rate taxpayers (20%) to stash £1,000 in a bank or building society before paying income tax on any interest earned. Higher-rate taxpayers (40%) will have their allowance cut in half to £500.