Written by: John Padgett on Thursday 31/03/2016
The Chancellor’s recent budget included far-reaching changes for owners of commercial property. We take a look at what was included and what it means for commercial landlords.
From April 2017 the small business rate relief threshold will be more than doubled, from £6,000 to £12,000. This means that almost 600,000 small businesses will pay no business rates at all and many will save up to £6,000 every year.
Introduced to encourage investors or commercial property owners to renovate derelict business premises or bring them back to a functional state, BPRA offered investors a 100% tax allowance on expenses which were required to do so. From 31 March 2017 (for corporation tax payers) and 5 April 2017 (for income tax payers) this allowance will no longer be available meaning that people wishing to renovate or convert buildings into commercial premises will have to pay the full tax on building works and services.
One of the chancellor’s main changes, which will affect buy-to-let landlords particularly, is the introduction of a higher rate of stamp duty land tax (SDLT). This will affect investors who wish to enlarge their portfolio of buy-to-let properties which cost more than £40,000. The changes place an additional 3% on all bands of SDLT and raise the minimum payable (on properties valued between £40,000 - £125,000) to 3% and the maximum (on properties worth more than £1.5 million) to 15%. The government expect this increased levy to generate over £630 million in 2016/17 and up to £855 million by 2020/21. The change will affect investors who own a second (or more) property which is not their main residence and purchase another one. To ease in the adjustment, a proposed time delay has been put forward. This means that there is now a 36 month period of grace (with a starting date of 25 November 2015) whereby buyers can claim a stamp duty refund.
The rate at which capital gains tax is paid is set to fall by 6 April 2016 from 28% (for higher rate tax payers) to 20% (18% for basic rate tax payers down to 10%). However, these rates will not apply to gains made on second homes or buy-to-let properties and will remain at the existing rate. The government explained that it wished to provide ‘an incentive for individuals to invest in companies over property’ in a move to stabilise the rental housing market.
A new £1,000 allowance for income earned through property will be introduced from April 2017. This means that income earned by ‘micro-entrepreneurs’ on renting out all or part of a residence, building, land or property (even in some cases a driveway as a parking space for commuters) will not have to pay tax up to the amount specified.
From April this year, the wear and tear allowance is being scrapped. Previously, landlords were able to deduct around 10% of the taxable profit on their rental income to allow for wear and tear. The new system will allow them to deduct the actual cost of replacements of furnishings, fixtures and fittings. The changes will not affect landlords who wish to claim tax relief on the cost of routine property repairs and will still include the property’s furniture and fittings – these items will still qualify for full tax relief.
If you need advice on any aspect of how the government’s budget will affect you, as a commercial landlord, please get in touch with a member of the Eddisons team. We can offer you confidential, considered advice on a range of commercial property services including business rates appeals, lease advice and empty property compliance.