What happens if I want to invest in property?

Britain’s property market has always been regarded as a sound and sensible place to invest your money, regardless of whether you are an aspiring landlord or just looking to purchase a home to sell-on in a few years’ time.

However, depending on your intentions and personal situation, there are a number of things to consider in order to get the most out of property investment.

Important changes to SDLT

Following important Stamp Duty Land Tax (SDLT) changes rolled out in recent years, any existing homeowners who purchase a second or ‘additional’ property – i.e. for buy-to-let purposes – will need to pay an additional three per cent SDLT surcharge upon purchase.

It is important to ensure you can cover these costs, yet continue to make a profit when you come to let out the property. It is equally important to factor in other typical purchase costs such as conveyancing and surveyors’ fees. An average investor purchasing a £150,000 property will effectively lose £5,000 in SDLT. On top of this, legal fees can cost anywhere between £850 and £1,500.

The ‘phasing out’ of mortgage interest tax relief

Both existing and aspiring landlords also need to be aware of ongoing changes to mortgage interest tax relief.

First introduced in April 2017, these gradual changes will see the tax relief landlords are entitled to claim for finance costs slowly restricted to the basic rate of income tax between now and 2020.

Previously, landlords were able to deduct mortgage interest with their other allowable costs from their total taxable rental income – but this is unfortunately no longer the case.

Mortgage ‘stress test’ changes

Changes to mortgage stress tests introduced by the Prudential Regulation Authority also need to be considered – particularly if you are an existing investor who already manages a large portfolio of buy-to-let homes.

Following new rules, mortgage lenders must carefully assess the affordability of landlords before they are able to offer them a mortgage.

These changes mean that portfolio landlords need to provide extensive tax and financial information to lenders in order to meet the requirements of so-called ‘stress tests’.

Capital Gains Tax

Finally, if you purchase a property with a view to disposing of it at a later date once it has appreciated in value, or if you are interested in selling off an existing buy-to-let property, it is important to be aware of Capital Gains Tax (CGT) – a tax charged on the disposal of appreciating assets. As always, planning ahead is key in order to ensure a tax-efficient disposal.

Investing in property via a company structure

In recent years, an increasing number of landlords have begun investing in property via a company structure, which can potentially have great tax benefits depending on your unique situation. However, it is important to seek specialist advice, as you will need to think very carefully about:

  • SDLT
  • CGT
  • Annual Tax on Enveloped Dwellings (ATED)
  • And much more.

Need assistance?

Despite the various tax challenges and purchase options, today’s buy-to-let landlords face, property investment remains incredibly popular in the UK and can still be very lucrative if the right advice is sought ahead of time.

For tax advice tailored to suit your unique circumstances, get in touch with our expert team today.