The 2016 Finance Bill sees the introduction of important tax changes for property investors that were originally announced in the 2015 Budget.

From 6 April 2016 onwards there are important tax changes affecting the replacement of furnishings for buy to let landlords, the 6 April 2017 will see the start of mortgage interest being restricted to basic rate only.

Wear and tear allowance abolished

Until 5 April 2016 landlords who were letting residential property on a fully furnished basis were able to claim a 10% “wear and tear” allowance towards the cost of the depreciation of furnishings.

This simple allowance was an alternative to claiming a deduction for the actual cost of replacing furnishings which was a concession that applied up until April 2013.

So for example, where the gross annual rent was £9,000 there would have been an allowable deduction of £900.

This change seems to be inconsistent with the government’s stated desire to simplify the tax system.

Interest relief restriction starts 6 April 2017

As previously announced the current deduction available for mortgage interest and other finance costs starts to be phased out from 6 April 2017.

In 2017/18 only 75% of finance costs will be deductible in arriving at rental profits, the remaining 25% will only qualify for basic rate tax relief.

In 2020/21 there will be no deduction against rental profits for finance costs, just a basic rate tax reduction.

This will not only affect higher rate taxpayers but will also have the effect of pushing some landlords into higher rates of tax.