Property investment will be taxed differently – are you prepared?
There’s been a lot of negative press about property investment since George Osbourne started to change the UK property tax rules. Stamp duty has increased, the way that mortgage interest is dealt with by the tax man has been modified, and Osbourne has even attacked wear and tear allowances.
These changes even prompted The Spectator to announce that property investment just became a very, very bad idea. But if you navigate a steady course in your property investment strategy, even though the tax changes are a big shake up of the buy-to-let opportunity, property investment can still change your life for the better.
How property investment tax rules are changing
There are three main changes taking place to the way that property investment is taxed:
1. Wear and tear
Before April 2016, a property investment could command a deduction of 10% of rent received -as wear and tear. This was deducted from income and reduced tax liability. Now such a deduction is not automatic and you’ll need to keep receipts to show how much you are claiming for wear and tear.
2. Stamp duty has increased
The amount of stamp duty a property investor pays on a purchase has increased by 3% for all property investments (including buy-to-let properties) except those purchased for less than £40,000. George Osbourne has called this the ‘stamp duty surcharge’. As a property investor, your property investment is going to cost you 3% more today than it did before April 6th 2016.
3. Mortgage tax relief
From April 2017, instead of mortgage interest being deductible from rental income before calculation of income tax liability, you’ll only be able to claim tax relief on the interest at a reducing rate. By 2020/21, this will be restricted to 20%. Higher rate taxpayers in particular are going to be hit hard by this.
How can you defend against the UK property tax changes for your property investment?
Even though the property tax rules have changed and are becoming less advantageous, this doesn’t mean that property investment has suddenly lost its sparkle. If you’re prepared and plan properly, you’ll find property investment is still capable of providing amazing passive income.
Here are five things every property investor should ensure they do by way of tax planning:
- Make sure you structure your investment to pay the lowest rate of tax
- Never forget a tax deadline, and submit all self-assessments on time to maximise annual tax allowances
- Keep tax records methodically and comprehensively, and keep all receipts of all payments
- Use a company structure to hold your property investment portfolio only if it makes sense to do so
- Always have an exit strategy
The most important property investment strategy of all?
No one likes paying tax, but it is a necessary evil. The biggest mistake you’ll make as a property investor is to put tax considerations at the top of your property investment strategy to-do list. If you prioritise tax, you’ll forget to make sure you’re investing in the right property in the right location.
Of course, it’s also folly to ignore tax issues altogether. There are taxes that are unavoidable, but if you invest in property wisely and consider structure and strategies to mitigate your tax liability on your property investment will work hard for you and not the taxman. Sure he’ll have a slice of the pie, but you’ll get to keep your fair share.
Join us…
If you want to know more about how you can reduce your tax bill from your property investment, make sure you tune into our exclusive property investment seminar on June 4th. I will also discuss:
- How to structure property investment to make money over the next five years
- Our unique 5 step research and property selection process
- Effortless property management
- And much more
This event has now passed, to find out more about future events and property investment opportunities contact us.
Live with passion and fun,
Brett