Wed 27 Jul 2016
Following the former Chancellor of the Exchequers announcement on 25th November 2015, any purchase of second properties in the UK from 1st April 2016 were to be faced with extra tax.
Dramatic surge in investment
The beginning of the year saw a dramatic surge in investment hungry developers and landlords race to get ahead of the impending tax hike which saw a sharp increase in stamp duty with increases of 3% above the standard rates of SDLT set to be charged.
The direct challenge of the buy to let industry was intended to create a slow down to the exceptionally successful investment market which over the last few years has by far out performed in the ‘best for your buck’ asset arena. The intention of the tax increase certainly created a stampede to the gates on the 1st April with the Bank of England confirming a large percentage of sale transactions which occurred in the first quarter were that of investment purchases.
Possible effects from the tax increase...
The investment landscape following this significant increase in tax is yet to be seen in the market, the experts certainly are predicting a down turn in this sector, however the bank of England remains positive about the future of investment. Some property experts predict that the effect may be a substantial increase on rents as landlords attempt to recoup their added expense through the rental income.
And the repercussions of the Brexit vote
In addition to this the repercussions of the Brexit vote may also play a part in the industries’ future. Speaking recently at the Commons Treasury Committee meeting Richard Sharp, an external member of the FPC (Financial Policy Committee) commented that buy-to-let lending was likely to see a significant cooling in the wake of the referendum as the Bank of England assesses the impact on house prices.
The National Statistics released this month show the not surprising spike in property transactions in March 2016. What is more encouraging to see however is that although the following months show a noticeable drop in sales than the month before it is noted that the corresponding period in 2015 was considerably lower.
Some relief for buy-to-let investors
There is also some relief that can be sought from the stamp duty sting through Capital Gains Tax on the eventual sale of the property where that initial cost can be off set along with Solicitors costs and Survey costs. In addition, other expenses which may have had to be paid for preparing to Let a property. It is also worth noting that if your first property is sold within a 3-year period you can claim the tax back retrospectively through the HMRC.
When looking at your tax during a Tenancy there are ways to reduce the amount of tax you pay by offsetting your “allowable expenses” that the HMRC allows you to claim for. Claiming interest on buy-to-let mortgage payments allows you to counterbalance your mortgage interest against the rental income leaving the gap between, which is your profit as the taxable part*.
Property still a lucrative investment
So in conclusion, all is not lost! The market for investment although may appear to be more financially challenging could still be a lucrative investment.
The news today confirmed a UK economy growth of 0.6% in the quarter with the ONS chief economist Joe Grice commenting to the BBC that “continued strong growth across services…boosted output in the second quarter. Any uncertainties in the run-up to the referendum seem to have had a limited effect. Very few respondents to ONS surveys cited such uncertainties as negatively impacting their business”.
So with the expected downturn not so downward turning and interest rates dropping to 0.25% Property is still a good place to have your cash.
John German Estate Agents have some amazing investment opportunities, why not take a look for yourself.
*from 2017 rules change on this to 20% tax relief.
"After approaching a number of local agents we went with John German based on their professional and insightful approach, as we were dual listed (due to other constraints), we found the direct comparison quite stark particularly the level of communication end to end and above all, the practical and helpful advice. Well done to the Lichfield office, a great team who I would strongly recommend to anybody contemplating the important buying or selling decision."