1. Swansea Landlord’s Forum 15 th March 2016 Jeannette McLellan Pylewell Rhossili 07712 490523

2. Swansea Landlord’s Forum Wear and tear allowance/repairs Stamp duty Tax relief for financing costs Planning

3. Wear and Tear allowances From 6 th April 2016 the allowance will be withdrawn A new relief will be available for replacing furniture, furnishings, appliance and kitchenware It is not available for FHLs and commercial property Integral fixtures not included Standardises treatment of fixtures and furnishings Initial cost of items will not be allowed but watch improvements

4. Repairs – where are we now? What is a repair? ‘Pre- trading expenditure’ on repairs Distinction between furnished and unfurnished now no longer relevant If its not a repair it may be capital Capital allowances still available for FHLs, commercial property and communal areas in residential property

5. Stamp duty land tax Additional 3% duty on buy to let acquisitions Applies to individuals and companies Effective for all completions after 5 th April 2016

6. Tax relief on financing costs Applies from 6 th April 2017 Interest no longer an allowable expense Tax relief at 20% deducted Introduced on a gradual basis; 25% each year – fully effective 2020/21

7. Tax effect (1) 2016/17 Rent55000 Interest-25000 Other expenses-5000 Gross profit25000 Other income11000 Taxable36000 Less: personal allowances-11000 Chargeable25000 Tax @20%5000 Tax @ 40%0 Loan interest relief0 Net rental income20000 2020/21 Rent55000 Interest0 Other expenses-5000 Gross Profit50000 Other income11000 Taxable61000 Less: personal allowances-11000 Chargeable50000 Tax @ 20%6400 Tax @ 40%7200 Loan interest relief-5000 Net rental income16400

8. Tax effect (2) 2016/17 Rent10000 Other costs-2000 Interest-5000 Net taxable rental profit3000 Tax @ 40%1,200 Less: Loan interest relief Effective rate of tax40% 2020/21 Rent10000 Other costs-2000 Interest0 Net taxable rental profit8000 Tax @ 40%3200 Less: loan interest relief-1000 Effective rate of tax73%

9. The Larger Investor 2016/17 Rent600000 Other costs-200000 Interest-350000 Net taxable rental profit50000 Less: personal allowances-22000 Taxable28000 Tax @ 20%5600 Less: Loan interest relief Net tax liability5600 Effective rate of tax11.2% 2020/21 Rent600000 Other costs-200000 Interest0 Net taxable rental profit400000 Less: personal allowances0 Taxable400000 Tax @ 20%12800 Tax @ 40%94400 Tax @ 45%45000 Less: Loan interest relief-70000 Net tax liability82,200 Effective rate of tax164.4%

10. Problems Impact on net returns How does it work if there is a rental loss? Loan interest deduction restricted to tax paid in the year Impact on child benefit/other allowances etc Withdrawal of personal allowances if total income more than £100,000

11. Possible solution - Incorporation For a larger property portfolio Transfer properties to limited company Capital gains tax – need a business activity managed by owners Stamp duty land tax – relief if disposal by partnership

12. Any questions?