The economic impact of the spread of coronavirus this year is still to be fully realised. Chancellor Rishi Sunak has been tasked with finding ways to cover the costs associated with the recovery effort. One of the possible changes, that is not so appealing to landlords, affects capital gains tax (CGT).
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
According to a recently commissioned report, making the CGT rate equal to income tax, along with other suggested changes, would go a long way to helping Chancellor Sunak’s fundraising efforts.
Impact on landlords
Buy-to-let landlords would face yet another obstacle as a potential rise in CGT would affect them disproportionately. Many landlords have had to consider additional or different avenues to continue earning income after legislation and tax changes over the years have made the task difficult.
Selling off properties in your portfolio, diversifying your investments, or using a limited company to buy and manage your properties are all options landlords have had to use or are considering using in the future.
The number of landlords is at its lowest in the last seven years according to the figures produced by the estate agency, Hamptons International. And new data from The Nationwide Building Society reveals that landlords’ profits have dropped significantly.
Some experts fear that since many property investors already have one foot out the door, if these changes were instituted, it could be the final straw. There could a selling frenzy to prevent any further loss of profits. And certainly, others would not hesitate to explore other ways of making money if the proposed changes go into effect.
Many medical and dental professionals have property portfolios. So how can landlords protect their profits?
Using a limited company provides a higher level of tax relief and personal tax savings. Income tax is not paid on the retained profit and even though corporation tax is payable on trading profits it is still lower than the higher income tax rate.
To get lower interest rates, switch to shorter-term fixed-rate deals. Don’t forget to check the arrangement fees and early repayment charges.
Diversify your portfolio. Include a mix of traditional buy-to-let properties along with off-plan new builds, student rents, or HMOs. Just as with any other type of investment portfolio, if something goes wrong with one area of your real estate holdings, you still have other areas performing for you. Branch out on locations to get the best returns.
If you do want to sell, remember to try to do so before April 2021. Hitting this deadline will let you claim the £12,300 tax-free allowance.
If you fail to report gains on UK property within 30 days of selling it, you may have to pay interest and a penalty, so don’t forget!
There have been no decisions made yet about these suggested changes, but it’s best to be prepared for any and all eventualities. Get in touch with your financial adviser to review your investment portfolio and financial plan to see if any changes need to be made. Whether that means exploring your options or getting out of the industry altogether, your adviser can look at your entire financial situation and help you make the decisions that will help you achieve your goals.
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