Tax on Rental Income changes
In the recent budget there were a few changes to the way Rental income is taxed.
Firstly, mortgage interest can still be claimed against your rental income, but the tax relief will be capped at the basic rate. Therefore if you are a higher rate tax payer, then your tax liability will increase on your Rental profit. This change will be phased in over the four years from April 2017.
Remember, that it is only mortgage interest that can be claimed against the rental income, not the total mortgage payment.
The second change is that the 10% wear and tear allowance will no longer be available from April 2016. Instead, you will have to claim the actual replacement cost of furnishings. If possible it would be worth delaying the expenditure on furnishings of a let property until after April 2016, so that it can be claimed against your rental income.
Another change to come in from April 2016, for the better this time, is the increase in the rent a room allowance. If you rent out a room in your house you can receive up to £7,500 per annum from a tenant (previously £4,250), tax free.
If you receive more than £7,500 per annum then you must complete a tax return. You can then opt into the scheme and claim your tax free allowance.
The rent a room allowance is halved if you share the rental income with another person.
If you would like to discuss the above issues, or you have any other accounting and tax questions please contact Alison at Mark Stanley Accountants Ltd on 01207 582528 or e-mail at [email protected]