Simmers & Co
Topical Points Answer
Buying to Let
The buying to let scheme within the Housing Market was up until recently very popular, especially when house prices were rising steeply. However, the bottom is potentially dropping out of the scheme and the current Tax regime for buying to let housing is quite unhelpful to landlords.
Many landlords do not appreciate that a great number of expenses, incurred as a matter of course, are not allowable as a charge against their Income Tax Liabilities on Letting Income. For example, the legal costs and stamp duty on the purchase of the property are not eligible as a charge against Income Tax. Similarly, if you spend money refurbishing the premises before you begin letting, this is not allowable against your Income Tax Liabilities. In both these cases, Relief is eventually given but only against any Capital Gains Tax charge on an eventual sale of the property. This could be many years later.
One other point of note in the Letting Scheme is that any Losses incurred through the Letting business cannot be offset against Income from other sources but need to be carried forward against future income arising from the property. This can be a nasty surprise especially if the property cannot be let easily.
When the property is eventually to be sold, the Capital Gains Tax Regime Reliefs are not very favourable. The property is not considered a business asset and does not, therefore, attract the lower rate of 10%. Any gain would be taxable at 18% after deduction of any annual allowance available. It should be noted, however, that this is relaxed for furnished holiday lets which are treated as conventional businesses so that losses can be deducted from other Income and the lower rate of 10% may be relevant to any gain on sale.
One final sting in the tail is that Inheritance Tax is payable in full on death and there is no Business Property Relief on the Property. This seems very unfair as the Letting of Investment Property with all the necessity for repairs, maintenance, etc. is in fact a business.