Budget News 2004 (cont)

Property Investors

From 6th April 2004, individual landlords (and other landlords, such as trusts, liable to income tax) of residential property who spend money on loft and cavity wall insulation will be able to off-set the cost, up to a maximum of £1,500, against rental income. Currently this is classed as expenditure on capital assets, which does not generate any income tax relief.

This is a welcome tax relief, which counts as a green measure and should be popular with individuals who buy to let. It is unclear why it is not extended to company landlords. Jointly owned ... but not necessarily taxed equally. Income from shares in close companies (broadly those controlled by five or fewer people) owned jointly by married couples is to be taxed in accordance with the underlying beneficial entitlement of each spouse.

Under current legislation, the income from all property owned jointly by a husband and wife is automatically split equally, each spouse being taxed on half, unless they elect for the income to be taxed in accordance with the actual ownership proportions and income entitlement. With effect from 6th April 2004, this will become the default position for income from close company shares. As a result, a married couple will no longer be able to reduce their overall tax liability by holding the shares in their family company jointly.