PERSONAL FINANCE
Personal finance t
he soaring price of property and the associated rise of Generation Rent have put buy-to-let in the
spotlight. The introduction of an additional 3% stamp duty on second homes, announced in the Chancellor’s Autumn Statement, follows significant changes to landlords’ tax relief. Property to let is the only type of investment where it’s possible to borrow money to invest and then claim full tax relief on the interest payments. This is clearly a tax break that the Chancellor now feels is ripe for reform and between 2017 and 2020 higher rate tax relief will effectively be withdrawn. Basic rate taxpayers may also be affected as the new rules will mean that tax is due on income before the deduction of interest payments, rather than on net income as is currently the case, pushing many into the higher rate band. a 20% tax credit on mortgage interest will then be available. the table below provides an example
RESIDENTIAL PROPERTY AS AN INVESTMENT - UNDER ATTACK? by Ian Thomas
Pilot FINANCIAL PLANNING.
Rising interest rates and taxes may therefore create a perfect storm for property investors
of how the rules will affect private landlords. those with larger mortgages and lower yielding properties will suffer most; some may even start to make a loss.
after april 2016 when all taxpayers drawing more than £5,000 will be subject to an additional 7.5% tax. the second attack on the buy-to-let market is the abolition of the wear and tear allowance. Landlords can currently deduct 10% of the net rent, whether or not they actually spend this money. the proposal is that only actual expenditure would be tax deductible. and these changes follow fast on the heels of other recent Government interventions. since april 2015 foreign investors will be required pay capital gains tax on any uK property which, together with the new 12% stamp duty band, may make some look elsewhere for their next investment. so property as an investment is certainly facing some considerable headwinds but many people I meet still believe that a shortage of supply will continue to drive prices higher – ‘house prices will never fall’. this isn’t true of course; for example,
between 1988 and 1993, London house prices fell by almost 30%. over time prices recovered but it took nearly a decade and much longer in real terms. Valuations again look
stretched. this doesn’t necessarily mean that prices won’t rise even further but the ratio of London house prices to
this approach to investment property taxation will not apply to furnished holiday accommodation – a relief to many in our locality – or to properties managed through a company. as a result, many landlords are now considering the
merits of managing their property through a company; however this isn’t without its issues either. there are two layers of capital gains tax: first in the company and then on the disposal of any shares. as companies are immortal, the capital gains exemption on the death of an individual who owns an asset directly will not apply. extracting any profits via dividends will also become more expensive
average incomes is now the highest on record and we are close to that point in the south west too. Despite this, mortgage payments, expressed as a percentage of income, are only just above their long-term average so affordability remains reasonable. that picture would change considerably if interest rates rose again to ‘normal’ levels. rising interest rates and taxes may therefore create a
perfect storm for property investors in the coming years. the good news is that our children will be delighted.
Pilot Financial Planning is authorised and regulated by the FCA. This article is intended to provide helpful information of a general nature and does not constitute financial advice. For more information contact Ian Thomas 01803 839194 email: ian@pilotfinancial-
planning.co.uk.
www.pilotfinancialplanning.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132