What does the Autumn Statement mean for buy-to-let?

With research showing that one-in-ten is planning to leave the rental business, it is time to answer some questions around the thorny subject of troublesome tax, and hopefully allay some fears...

What exactly are the changes?

If you already own your property, it was the Summer Budget that would have caused you the biggest headache. Currently, landlords receive a tax break of up to 45% on mortgage interest from rental properties. However, this is set to change in April 2016, when full tax relief will be removed, and changes will start to be introduced. By 2020, you will only be able to offset your mortgage interest at the basic rate of tax, 20%.

If you were looking to buy a buy-to-let property, or expand your existing portfolio, the Autumn Statement has thrown another spanner into the works. The Chancellor announced that stamp duty will increase 3% for buy-to-let and second home buyers, making a previously affordable property seem less of a steal...

OK. I already own my property and I’m only a basic rate tax payer. Should I be worried?

If you're not planning to buy any further properties, the stamp duty changes shouldn't worry you too much.

With regards to the tax changes though, you should be aware, and check your situation. Whilst it seems that the changes only apply to higher-rate taxpayers, some basic rate taxpayers will also be affected. The way the new system operates means that rental income is added to any other incomes, which could possibly push you into a higher tax bracket. If you have bought with a large mortgage you are at the highest risk.

Is anything else changing?

Yes. The amount you can deduct from your rental income is changing. Currently there is a large number of tax-deductible costs, but these are being scrapped as of April 2016, so make sure you are making the most of them now:

If you rent a fully furnished property, there is currently a tax break which allows you to claim 10% of your rent for wear and tear. From April 2016, you will only be able to deduct cost that you actually incur.

Fees incurred finding tenants are currently tax deductible. You are able to claim back advertising, tenancy agreement, credit checking, referencing, deposit protection and professional inventory costs.

Ensuring your property is in a fit state for tenants is vital, so maintenance is currently a claimable cost.
Leasehold fees and on-site service costs.

Council tax and utility bills during periods when the property is without a tenant.

Is there more to come?

Despite the changes that are coming, experts do not expect any further announcements in the Autumn statement.

Ultimately, should I sell up or sit tight?

It may seem confusing, but don’t make any hasty decisions to sell up and get out of the market too soon, it could be a costly mistake…

If your property portfolio has increased in value you may face a capital gains tax bill, which is calculated as a percentage of the capital gain. This is the difference between the purchase and selling price, minus any costs. The rate is 28% for higher income tax payers, and 18% for basic rate (as long as the gain doesn’t push them into the higher bracket). From 2019 Capital Gains Tax to be paid within 30 days of a property disposal, which is something to consider.

With George Osborne pledging £2.3 billion for the building of new homes, there is likely to be plenty of people looking to make the move from rental to home ownership. Many landlords are considering making the decision to sell in their investments now, but consider that with the changes that will make it harder to become a landlord in the UK, there may be less rental properties on the market available for the thousands of people that still require them - so don't cash in your chips just yet!