Autumn Statement 2016 – RITA4Rent’s View

Philip Hammond has just delivered his first Autumn Statement, giving us a good idea of the shape of things to come.  RITA4Rent are blogging today with their rough initial thoughts and notes.

A lot of landlords were clinging on to the pipe dream today that Section 24 would be reversed or watered down, especially given reports that Mr Hammond is himself a landlord. But alas, it was not to be, as expected.

So, it’s as you were for Section 24.  We brace ourselves for April 2017 when the changes begin to be implemented.  To recap briefly, from 6th April 2017, i.e. the 2017/18 tax year, an equal 4 year phase in will commence, so that by 2020 finance costs and mortgage interest will no longer be deductible from your rental profits.  Instead, you will be taxed on this new inflated profit, with a reducer available, normally equating to 20% of your mortgage interest and finance costs.  The term normally is used here, as officially, the 20% reducer is the lowest of:

  • Your total finance costs and mortgage interest which have not been deducted from your income
  • Total rental profits less any rental losses brought forward
  • Total income (less savings and/or dividend income) exceeding your personal allowance

It was originally stated that 1 in 5 landlords will be affected, although this does appear inaccurate.  Not just higher rate and additional rate taxpayers will be affected; there are some who will find themselves in the higher rate band where previously they were in the basic rate band.  There will also be landlords seeing a reduction in their tax credits, with child benefit and student loan deductions also potentially affected.

Some landlords will be able to find suitable strategies to mitigate the changes, whereas others may increase rents.  Popular strategies include incorporation (especially given the upcoming tax rate reduction announcements), Form 17s, additional AVC/gift aid donations, and diversification of the portfolio.  There are lots of options; it is more a case of ascertaining what, if applicable, is the best strategy for your own circumstances.

We mentioned in the previous paragraph of the possibility of rent increases.  This leads neatly onto another announcement today in the Autumn Statement, that letting agents are to no longer charge tenants fees, with further costs potentially being passed on to landlords.  Again, this raises the question of whether landlords will look at counteracting this with rent increases.  And if some landlords need to raise rents to cope, is there a danger that unaffected landlords will jump on the bandwagon to match rents charged by similar landlords in the same geographical area? 

It will be interesting to see how this develops and it would certainly not be good to further fuel the anti-landlord sentiment amongst the population.  Although, you would expect most landlords to ensure they have considered all other angles of their business first, before taking that somewhat last drastic step.

With a government seemingly determined to desire an appearance of helping first time buyers, tenants’ ability to save for a deposit on their first home purchase may well be affected by the very changes above.

Other announcements included the expected raise in personal allowances and higher rate thresholds.  Whilst this is of some benefit to landlords, it is of course no comparison to any hope of a Section 24 reversal.

There was a brief hope too that the stamp duty surcharges would be discussed at the Autumn Statement. Again though, it is as you were. Therefore, those who purchase residential property for more than £40k continue to face the additional 3% higher rates if they own two or more residential properties at the end of the day of the transaction, and who are also not replacing their main residence.

RITA4Rent are property and landlord tax specialists.  For more information, please visit our main website