Well the last few weeks have been rather hectic, Solihull
landlords have been sending emails or picking up the phone to me regarding the
new rules on buy to let taxation announced in the recent budget. George Osborne
confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments for their
buy to let properties would be reduced over the coming years for higher rate
income tax payers. The Chancellor said the current 40%-45% tax relief
that private buy to let landlords (who pay the higher rate of income tax) now
get would change in 2017 and would steadily reduce over the following four
years to 20% by 2020.
With 10.3% of residential property in Solihull being privately
rented (5,242 rental properties in total), these changes are potentially
something that will not only affect most Solihull landlords, but also the
tenants and the wider property market as a whole. The choice of rental
properties could decrease, especially at the top end of the market, which could
increase rents.
However, Solihull
landlords could protect themselves by reassigning one or more rental
properties into a company structure (e.g. a Limited Company, Partnership or
Sole Trader) and by doing so, the total tax paid is greatly reduced because a
company only pays tax on the profit. Nonetheless before everyone goes off
setting up companies for their buy to let portfolios, it must also be noted if
a sole trader firm is started stamp duty needs to be paid, yet if the owner is
in business with a partner they could enjoy some stamp duty relief. The biggest tax variation is Capital Gains Tax
where the tax bill will be much higher when you come to sell your portfolio. In
essence by going into business with your buy to let properties, you will
potentially have a modest stamp duty to pay when you start but you will have a
lot less monthly tax to pay. Irrespective of the interest rate, the Capital Gains
Tax bill will be much higher when you come to sell ... as you can see, it is
not a ‘get out of jail card’. Now it must be remembered, I am not a tax
advisor, so you must take advice from a qualified person.
Those planning to purchase a Buy to let property will have
to factor these new rules into their calculations and this could affect the
offers they are willing to make. However, I am not that concerned, as the
scaremonger reports fail to see the fact that two out of three Buy to let properties
that have been bought since 2007 have been purchased without the support of a Buy
to let mortgage. With those two thirds of landlords paying cash for the
purchase of their rental properties, this means two thirds of landlords will be
totally unaffected by the changes.
So what will happen in the future? The British love their
Bricks and Mortar, it’s an asset that they can touch and feel and has a 70 year
track record of capital growth that has out stripped inflation. Buy to let will
still be attractive to Solihull investors and let me explain why. If you
invested £40,000 into Solihull property in September 1987, today it would be
worth £176,785. If you had invested the same £40,000 into the London Stock
Market, it would be only be worth £114,506 today. Whilst inflation would have
taken the original £40,000 and pushed it up to £83,127.
It’s true that some central London landlords rely solely on
the tax breaks rather than high yields and may be forced out of the market, but
even those landlords could seek to recoup any losses by increasing rents. However,
those landlords may leave the market, constricting the availability of rented
houses even more than it is already, increasing rents and thus pushing yields
even higher for landlords and BTL investors still in the market... thus
attracting new landlords into the market because of those higher yields.
The reality is that there is too much demand and not enough
supply of homes, for people to live in in the town. This sets up the Solihull
and UK property market to continue creating strong and steady returns,
irrespective of any tax loophole being there (or not as the case maybe).
For further information and advice on the Solihull property
market, feel free to pop into our property lounge or visit my property blog http://solihullpropertyblog.blogspot.co.uk/
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