Is Property Still The Best Bet?
Thirty years ago when Stamp Duty, utility bills and council tax were lower, if you had an increase in salary or were expecting a baby, a homeowner’s first thought was to try and make that UP MARKET MOVE. In the 1990’s homeowners became a little cautious after the property crash and transactions slowed. Despite thousands of new houses being built in the 2,000’s and interest rates and Estate Agent’s fees being lower than in the 1980’s far fewer people have made that UP Market Move.
Homeowner to Property Porfolio
In part I feel that this is because the Government has actively encouraged people to purchase a Buy To Let as an investment, rather than make that Up market move. A Buy to Let property was portrayed as not just a capital growth investment, but as a monthly pension plan. Buy to Let mortgages have been easier to obtain, whilst tenants have paid off the landlord’s loan and up to 40% tax relief has been given. Recently the Government has also allowed people to release pension pots to part finance a purchase. In fact financial advisers have encouraged people with the cash , not to purchase just one investment property but to buy several; using the cash for the deposits and taking the rest out as mortgage. I am sure that at the time this was BEST ADVICE, gaining maximum tax relief. However, the Government in recent months seems to have launched an attack on the small, private, Buy to Let investor, the very same one that it had previously courted.
New Legislation 2016 to 2020
Since April 2016 anyone buying a second home even if it is for themselves has had to pay an increase of 3% stamp duty on the full amount. A substantial increase and obviously one made to discourage people from owning more than one home. Whilst this policy fuelled an increase in transactions in the first quarter of 2016 and resulted in substantial price increases, investment buyers, in a rising market don’t seem to have been deterred. However, in April this year the Government will introduce another blow to the small, private investor with a mortgage on their Buy to Let. The change may even take a standard tax payer into the 40% threshold as illustrated in this extract from The Mortgage Works. Tax information is based on our understanding of the proposed tax legislation as at 16 January 2017, and may be subject to change.
No information on this site should be taken as tax advice. For tax advice readers should consult with an independent tax adviser.
At present, landlords can deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability.
From 6 April 2020, tax relief for finance costs will be restricted to the basic rate of income tax, currently 20%. Relief will be given as a reduction in tax liability instead of a reduction to taxable rental income.
The changes will be phased in from April 2017, as the table below shows.
|Tax relief on finance cost||2016/17||2017/18||2018/19||2019/20||2020/21|
So, is Property still a GOOD Investment?
Whilst there remains a national housing shortage, bricks and mortar will remain a sought after asset. Those of you fortunate enough to own a property in CB23 will also benefit from capital growth gain associated with Cambridge. So if the Government are taking away the perks of owning a Buy to Let as part of your pension plan, then why not take advantage of low mortgage rates and fix yourself a deal on your DREAM HOME. This way you and your family can actually enjoy the benefits of your savings or pay rise. Then when it is time to DOWNSIZE you won’t need to pay Capital gains Tax on your investment.
Seems a no brainer? And I have to say that 3 of our vendor/landlords are doing it this month! So don’t miss the boat, before interest rates go up, make your up- market move and fix yours now.