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Insight & Opinion

What will buy-to-let tax changes mean for investors in 2017?

Author: Gemma

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How will buy-to-let taxes affect you?

Buy-to-let landlords have witnessed huge changes to their property investments over the last 18 months and, as we move into 2017, more changes lie ahead.

What changed in 2016?

Since April 2016, buy-to-let investors have paid an additional 3% on top of standard Stamp Duty taxes.

Buy-to-let and second home Stamp Duty tax bands
BracketsStandard rateBuy-to-let/second home rate (April 2016)
Up to £125,0000%3%
£125,001 – £250,0002%5%
£250,001 – £925,0005%8%
£925,001 – £1.5m10%13%
Over £1.5m12%15%
Source: HMRC

Despite calls from the property industry before the Autumn Statement, the additional buy-to-let tax continues to apply.

Brexit and UK property

The UK’s vote to leave the EU in June didn’t have the negative effect on the property industry which was expected. Despite fears that the so-called ‘property bubble’ would burst, the sector has remained resilient across the year.

Mortgage lender, Nationwide, has stated that the rate in which property prices have grown has slowed since the Brexit vote.

Average house prices in November were 4.4% higher than the previous year according to Nationwide. The rate in which prices increased was down 0.2% month-on-month.

However, the experts at the Halifax expect that even if prices ease over the next few months, low interest rates, and the high demand for housing compared to the number of houses on the market, will continue to help support the sector.

buy-to-let tax changes

What will change in 2017?

In a bid to make the tax system fairer, the government has set the wheels in motion to restrict finance cost relief for individual landlords.

This means that landlords will no longer be able to deduct their mortgage interest payments from their property’s rental income before they calculate their taxable income.

  • Restrictions will apply on finance relief on residential buy-to-lets to the basic level of Income Tax (20%)
  • Restrictions will apply to mortgage interest, interest on loans for furnishings, fees incurred on taking out or repaying mortgages/loans
  • No relief will be available for capital repayments of a mortgage or loan
  • Landlords/investors will no longer have the power to deduct their finance costs from their property income to determine their property profits. Instead, landlords/investors will receive a basic rate reduction from their income tax liability for their finance costs.
  • These steps have been put into place to prevent wealthier landlords from receiving generous tax treatment. Read more here…

    These changes will be applied from 6 April 2017 and will be phased in until 2020.

    property portfolio

    How will this affect your property investment?

    Let’s address the changes to tax relief first.

    The good news is landlords who pay the basic rate of tax, will see no changes to their payments.

    A basic rate taxpayer can still claim 20% tax relief however, those on a higher rate could see their relief drop by over half of what they can currently claim.

    Those on a higher income will find that their mortgage interest repayments will increase. Landlords who think that the change might affect them, may wish to seek advice from a mortgage advisor.

    According to research conducted by Kent Reliance building society, 100,000 limited company loans were taken out in the first nine months of 2016 – double the amount taken out in 2015.

    Landlords may wish to hold properties in a limited company structure as mortgage interest will remain tax deductible and the corporate tax rate currently stands at 20%.

    Stamp Duty

    Stamp Duty

    The UK’s government continues to focus on homeownership and it doesn’t look likely that the additional 3% Stamp Duty will be reduced any time soon.

    Despite a rise in buy-to-let investor purchasing properties before April,

    Investors may wish to readdress their finances before buying an investment property to ensure they fully understand the upfront cost of investing. Click here to access a buy-to-let calculator.

    Property portfolio

    How to get the most out of your portfolio

    A New Year, a new strategy.

    Investors should not be afraid to diversify their portfolio in 2017.

    Yes, there have been changes to the residential market however, this is not the only income generating sector property investors can rely on.

    Alternative investments may pave the way for investors to work around the government’s latest changes.

    Student accommodation, commercial property and the healthcare industry may deliver better returns in the mid-to long-term. Investors will benefit from lower upfront costs in the tax department depending on the level of their investment.

    Non-residential Stamp Duty tax is much lower than in the residential property market. Investors will pay 0% Stamp Duty tax on student property investments in a purpose-built block.

    If you are thinking of branching out into a new property sector, make sure you ask yourself these 5 key questions before buying.

    buy to let tax changes

    Are cash property investments the way forward?

    Alongside alternative investments, cash investors will be less affected by the government’s changes.

    Restrictions which will soon apply to mortgage interest repayments will (obviously) not apply to cash investors.

    Landlords may wish to buy lower entry level, cash property investments to reduce their Stamp Duty payments, with the aim to make their money work harder for them.

    property investment 2017

    What do buy-to-let tax changes mean for investors in 2017?

    Buy-to-let tax changes will mean that property investors will need to review their portfolio in 2017.

    The New Year is a great time for investors to take stock of how their properties are performing and to calculate the best way to generate an income over the next few years to come.

    Assets with an assured income, like the opportunities available through Experience Invest, will pay investors a fixed return for a pre-determined period.

    Off plan properties available through Experience Invest are cash purchases and, as they offer a range of asset classes, astute investors will be able to reduce their Stamp Duty taxes.

    What’s more, cash investments tend to have an early investor discount which provides stronger capital growth potential.

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