The UK’s property market has traditionally always been considered a stable and sensible place to invest your money, regardless of whether you are an aspiring landlord or just looking to purchase a home to sell-on in the near future.
However, from Stamp Duty Land Tax (SDLT) to mortgage interest tax relief and Capital Gains Tax (CGT), there are a number of things you will need to consider in order to get the most out of property investment.
Stamp Duty Land Tax
Following SDLT changes rolled out in recent years, any existing homeowners who purchase a second or ‘additional’ property – i.e. for buy-to-let purposes – will need to pay an additional three per cent SDLT surcharge upon purchase.
The rules governing SDLT can prove costly – and it is important to ensure you can cover these costs, yet continue to make a profit when you come to let out the property. It is equally important to factor in other typical purchase costs such as conveyancing and surveyors’ fees.
Mortgage interest tax relief
Both existing and aspiring landlords also need to be aware of ongoing changes to mortgage interest tax relief.
First introduced in April 2017, these gradual changes will see the tax relief landlords are entitled to claim for finance costs slowly restricted to the basic rate of income tax between now and 2020.
Previously, landlords were able to deduct mortgage interest and other allowable costs from their total taxable rental income – but this is unfortunately no longer the case.
Under the new changes, income tax relief on arrangement fees is also being restricted. As this restriction is being phased in gradually, it might be more beneficial to pay higher arrangement fees up front and reduce interest costs later down the line.
Another thing to keep in mind is that the restrictions on mortgage interest relief do not apply in instances where the properties have been acquired by a limited company. If a higher rate taxpayer acquires a rental property using a company and the rental profits are retained in the company, the overall tax being paid will be much lower, as corporation tax rates are currently significantly lower than the higher rate of income tax.
Mortgage ‘stress tests’
Changes to mortgage stress tests introduced by the Prudential Regulation Authority also need to be considered – particularly if you are an existing investor who already manages a large portfolio of buy-to-let homes.
Following new rules, mortgage lenders must carefully assess the affordability of landlords before they are able to offer them a mortgage. These changes mean that portfolio landlords need to provide extensive tax and financial information to lenders in order to meet the requirements of so-called ‘stress tests’.
Capital Gains Tax
Finally, if you purchase a property with a view to disposing of it at a later date once it has appreciated in value, or if you are interested in selling off an existing buy-to-let property, it is important to plan ahead for Capital Gains Tax (CGT) – a tax charged on the disposal of appreciating assets such as additional homes.
Speak to Grunberg & Co today
Despite the various tax challenges today’s buy-to-let landlords face, property investment remains incredibly popular in the UK and can still be very lucrative if the right advice is sought ahead of time. Get in touch with Grunberg & Co today to find out how we can help.