Chancellor George Osborne has unveiled a number of property and mortgage-related changes in today’s Summer Budget, from increasing the rent-a-room allowance to cutting buy-to-let tax breaks.
Help to Buy Isa: launch date announced
The Help to Buy equity scheme – which is designed to help people with small deposits get on the property ladder – has already been extended from 2016 to 2020. The second part of the scheme, the mortgage guarantee, is due to finish at the end of next year.
We now have a firm date for the launch of Help to Buy Isas, which will be available to first-time buyers from 1 December 2015 at participating banks and building societies.
Aspiring homeowners can save up for a deposit and receive a £50 bonus for every £200 saved, with a maximum government bonus of £3,000 on £12,000 of savings.
Savers will be able to open their Help to Buy Isa with a one-off deposit of £1,000 to kick things off and then £200 per month thereafter.
Find out more: Help to Buy Isas
Buy-to-let tax break capped
Landlords currently enjoy a generous tax break of up to 40% or 45% on their rental property mortgage interest, but this will be restricted to the basic rate of income tax – 20%. The government has said this change will be phased in over four years from April 2017.
Landlords can still offset mortgage interest as a tax-deductible expense on their annual self-assessment return, however, this tax relief will be limited to 20%.
The government will also change the way landlords deduct costs for improving and maintaining their rental properties. Currently, landlords of furnished properties can automatically deduct 10% for ‘wear and tear’ from their profit for tax purposes, whether they’ve made improvements or not. From April 2016, landlords will only be allowed to deduct costs they actually incur.
Find out more: buy-to-let mortgages
Rent-a-room allowance raised to £7,500
The rent-a-room allowance is set to almost double from £4,250 to £7,500 from April 2016.
This scheme allows homeowners to take in lodgers and receive a tax-free allowance on their rental income each year. The allowance has been frozen at £4,250 since 1997.
Find out more: rent-a-room allowance
Tax break for family homes
The Conservatives have confirmed that married couples and civil partners can pass on their family homes worth up to £1m to children or grandchildren without incurring any inheritance tax (IHT), from April 2017.
They will be entitled to a new transferable main residence allowance of £175,000 per person. As things stand, all individuals have a £325,000 IHT allowance, or ‘nil-rate band’, but married partners can transfer any unused allowance between them, effectively bringing their IHT exemption to £500,000.
From the 2017 tax year onwards, these proposals will allow couples to double their allowance and avoid paying tax at 40% as long as their property is valued under £1m.
Find out more: the new inheritance tax rules explained
Right to Buy extension
While it wasn’t mentioned in the Summer Budget, the Conservative manifesto states that the existing Right to Buy scheme will be extended to all housing association tenants.
Council house tenants can already apply to buy the home they’ve been renting at a discount to the market rate but the same scheme will also be open to housing association tenants.
The discount can be as high as 70%, up to a maximum of £103,900 in London and £77,900 across the rest of England. Tenants must have lived in a council or housing association property for at least three years to qualify and the home must be used as their main residence. If they sell within five years they will have to pay back the discount, plus a portion of any profit.
To plug the gap created by properties sold under the extended Right to Buy, councils will be selling off the most expensive properties and using that money to build more affordable homes.
Find out more: understand different mortgage types