With last year's three budgets from the Chancellor providing pretty bad news for buy-to-let inves...
With last year’s three budgets from the Chancellor providing pretty bad news for buy-to-let investors and landlords, many were worried about what George Osborne would announce this year. However, for now, it seems landlords have some breathing space to start working out how to manage the impact of the previously proposed changes that begin to come in this year.
These are the key changes we’re about to experience:
April 1st 2016: The increase in stamp duty for those buying a second home, over and above an existing residential property. The new rate is 3% higher than the standard homeowners’ stamp duty and applies to the full value of all properties over £40,000.
April 1st /6th 2016: The loss of the ability to automatically deduct a 10% ‘wear and tear’ allowance, irrespective of whether you’ve actually spent any money. Now you can only claim against money you have spent on repairs and only as long as it’s not classed as an ‘improvement’. April 6th 2017: Although there is a year until this takes effect, a big change that you will need to start looking at now even if you are close to being a higher-rate tax payer, is the withdrawal of higher-rate tax relief on the interest portion of your buy-to-let mortgage.
From April 2017, those on higher rates will have to contend with a completely different way of assessing earnings, as the relief is reduced over 4 years from 40% or 45% to 20%. This system could push some lower rate tax payers into the higher rate bracket.
When you add these changes to the increased costs and complexity of the legal rules and regulations of letting, the reality for landlords is clear: buy-to-let investment and running costs are going up.
The one change we thought was going to help investors was the lowering of Capital Gains Tax, from 28% to 20% for higher-rate tax payers and from 18% to 10% for lower-rate tax payers. This turned out to be a false hope as George Osborne made it clear the reduction didn’t apply to the sale of second-home properties. Although residential homes are free of CGT.
What I think is happening is the Treasury is making it clear they don’t want people to over-invest in buy-to-let property and would rather other investments were more favourable from a tax perspective.
Just look at the difference between investing in property and making other financial investments:
|Additional 3% stamp duty||No stamp duty costs|
|No income relief over and above costs incurred||First £5,000 dividends earned tax free|
|CGT at 28% or 18%||CGT 20% or 10%|
The big question is whether this makes buy-to-let non-viable in the future, or whether it simply makes other forms of investment more lucrative? The answer to this is, it depends on your objectives and expectations of what you need your capital to deliver.
To me, as long as you invest in property wisely and take the right advice from national and local experts, then it is still possible to make money from residential buy-to-let. However, if you just buy a property on a street and don’t seek the right advice, then you may as well invest in a lottery ticket or put all your money on one number on a roulette table.
And this is why some of the rhetoric currently worries me - and it should worry you too. Far too many people who aren’t necessarily qualified are keen to give or ‘sell’ you advice. Buying a property through a company or investing through crowd funding are much talked about, but they might not be the right solution for you and your circumstances.
What expert advice do buy to let investors and landlords need following budget changes?
Now more than ever, whether you are about to buy your first investment, have just one or one hundred properties, you need to take professional advice:-
Wealth/tax advice. Ideally seek this before you invest. If you already have a portfolio, make sure you understand the individual impact of the property and financial tax changes.
Property investment help. With the up and coming changes, a property that may have given a great return historically may not now do so. To make sure you own and buy property investments that offer the returns you’re hoping for, talk to your local Belvoir office.
Mortgage advice. Being on the right mortgage product can make or break your investment returns. As lenders typically review their rates every quarter, check once or twice a year that you have the right property or portfolio funding.
Lettings legals. There are reported to be 145 rules and regulations governing letting a property in today’s market. These can change regularly, so not only do you have to know what they all are, you also have to know when they change and understand how to implement the changes, and that’s not something I think can be done without specialist help. Belvoir offices have access to an expert legal helpline, which you can benefit from, as their landlord.
Right renovation team. Not every electrician or gas safety expert is up to date with landlord laws, so you have to make sure the ones you use are, and can advise you accordingly. For example, if you have damp, mould or condensation it’s not a builder or plumber you turn to, it’s an experienced surveyor that can diagnose the problem. Alternatively make sure your property is managed by an expert NALs/RICs or ARLA self-regulated agent to ensure you have the expert help required.
Fortunately, to ensure you have the right expert advice and contacts that will help make sure your property investment continues to deliver great returns your local buy-to-let specialist Belvoir will be equipped to help.