Despite significant growth in the buy-to-let property market in 2015, in the latter part of the year the sector was hit with several bouts of bad news. It seems the government are intent on levelling the property playing field back into the hands of property owners and at the cost of the investor. With the changes made to legislation, and those on the horizon it is highly likely that the buy-to-let sector will look quite different come the end of this year.
Politics. Politics. Politics.
The come-back of an all-Conservative government probably wasn’t considered a threat to property investors, who would not have expected any significant changes to be made to throw a spanner in the works for their current and future property investments.
However, with the Chancellor keen to reduce the country’s debt by 2020, it appears he has opted to reap some of the funds needed from the growth landlords are enjoying.
How drastic are the changes for this year?
The 3% increase in Stamp Duty Land Tax (SDLT) will add a hefty cost to purchasing a buy-to-let property, or indeed a second home, something that will deter some investors.
In addition, the changes to tax legislation will be a factor of careful consideration for current and prospective landlords namely, the cut in tax relief on mortgage interest, resulting in tax being applied to rental income instead of pre-tax profit, coupled with the bringing forward of the CGT payment.
The Financial Policy Committee (FPC) are also getting involved and using their powers to potentially curb lending activity on buy-to-let too, introducing a possible 50% deposit requirements, and the like.
All-in-all it is expected that taking into account all these factors, we will see a very different outlook for the buy-to-let sector in 2016.
What action can be considered?
Everything said though, some investors will always be interested in investing in bricks and mortar as a long-term investment and the changes won’t be enough to deter completely.
Those who have the funds available to expand their portfolio in the near future, could consider making the purchase before April 2016, to at least avoid the SDLT implications.
It is however expected that there will also be a different profile of investor, who just want to exit the property market, at least for now, and focus their investments on other areas.
Operate as a corporate
These changes by the Government suggests that they favour corporate and professional landlords, hence the decision to exclude limited companies from the tax cuts.
Subsequently, one other option for landlords to consider is transferring their property assets into a company structure, although here very careful financial and tax planning is required to ensure it is not going to cause excessive costs in other areas, such as Capital Gains Tax on the transaction. It will in fact only suit portfolios of a certain size and this needs to be discussed with a financial adviser as it will be bespoke for the individual landlord depending on their personal circumstances and future expectations.
Watch this space
One thing is safe to say, is that this news was not welcomed by the buy-to-let property sector. It will be case of watching this space this year and seeing what other news is delivered in the coming months.
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Dental & Medical Financial Services can discuss with you your best options for a current or potential buy-to-let investment and portfolio. Call today to speak with one of our expert advisers.