These UK property tax changes are undoubtedly a big shakeup of the buy-to-let market.
This said, as a property investor you will still benefit from the majority of the deductibles that were available this time last year to reduce your rental income and tax bill for your property investment.
For new investors or those expanding their property portfolio, the extra stamp duty is a chore and a bore as well as an extra cost that you could do without – but it is a known factor, and so one that can be considered and strategized for before investing. And this goes for the way in which wear and tear costs are now handled.
The biggest change is the way in which mortgage interest relief is calculated, and the effect this will have on tax liabilities and future profits for higher rate taxpayers. You should review your tax position and begin planning sooner rather than later to ensure your property portfolio is structured for maximum profit and maximum tax benefits.
Of course, Sir Jon Cunliffe and the National Landlords Association may be right
There may be more sellers in the market in the short term, and property prices may suffer a little because of this, though it will be the weaker investors who are selling. Investors who employ a strong strategy and understand the tax breaks and how to use them will be well placed to take advantage of any price weakness. This will enable these investors to increase their rental income, stay on top of their taxes, and benefit from the tax breaks that do exist and remain.
Ensuring that your mortgage arrangements remain competitive and conducive to profit as they work with your overall strategy should form part of an annual ‘to-do’ list.
If you follow these guidelines…
Keep on top of changes in the tax regime and ensure your property investment portfolio is structured to take advantage of your capital gains tax allowances and personal tax allowances and those of your spouse (if you have one), then you will be well positioned to continue to make the passive income that will provide you with the lifestyle you desire.
Of course, if you are a lower rate taxpayer anyway the change on mortgage interest tax relief has no effect on you (providing your rental income doesn’t move you into the higher rate tax bracket).
Remember that all markets change, evolve, and develop. The investor who is prepared will be able to evolve with the markets, understanding that strategy needs to be developed accordingly.
Keep the tax issue in proportion
It’s more important to put your energy into investing in the right location and the right property. Make tax planning a part of your property investment strategy, in the same way that financial reviews, expenses, and interaction with a good property manager should be. Direct your energy and emphasis in the right direction and concentrate on creating a portfolio for profit rather than a portfolio for tax avoidance.
Look for the opportunity
Once again, it will be the poorer and aspiring landlords and investors who are going to be most affected, those starting out and hoping to build some capital. The professional investors will roll with the punches and obviously do what is right at the next election.
Politicians tend NOT to change things that are already in place, rather they build on them. So it’s even more important that we make this as uncomfortable for Politicians by writing to them and telling them you will not be voting for them at the next election until they create a fairer system.
Regardless of all this, success is a function of our ability to in the words of Rocky Balboa (I know you’re a fan)
‘It ain’t about how many times you get hit, it’s about how many times you can get hit and keep moving forward’
So here’s to moving forward, take the punches move with the times, adjust your strategy to meet the market and always always always act early and create a strategy that works for you.
These tax changes may have knocked us down, but many of us are already up and racing again.
As always, the team are here to talk you through anything you need, we’re here to support you through whatever is happening in the market. Call our team on +44 (0)207 923 6100.
Live with Passion, Invest with Certainty,