Still the best investment, despite higher property taxes

Brett Alegre-Wood
January 22, 2018

Landlords selling because of UK property tax changes may be missing the bigger picture

The impact of changes in tax and regulations is having a negative impact on landlords, who are now paying more than their fair share of tax. However, buy-to-let landlords will still benefit from more than £16 billion of tax relief even after the full effects of the cut in mortgage tax relief come into force in 2020. These are the conclusions drawn by two recent surveys of the buy-to-let sector.

Should you follow the lead of landlords planning to downsize their portfolios this year? Or do the tax reliefs still available make residential property investment worthwhile?

1 in 5 landlords are planning to reduce their portfolios in 2018

According to data from the National Landlords Association (NLA), 1 in 5 landlords is likely to reduce the size of their property portfolios in 2018. Evidence suggests that they have had enough of the tougher regulations and tax changes of recent years. As mortgage interest tax relief at the higher rate of tax is phased out through to 2020, some property investors are likely to face higher tax bills.

Add to this the 3% stamp duty surcharge on investment properties, tougher mortgage regulations, and the ban on letting agents’ fees to be introduced, and it’s easy to get the impression that all is doom and gloom in the buy-to-let market.

Do landlords pay more than their fair share of tax?

The NLA also released several videos to explain the impact of the tax changes. They don’t make good viewing. They examine how tax for property investors and buy-to-let landlords may impact earnings after 2020. They compare four different people earning £50,000 by different means and indicate that landlords will be paying more tax than earning a salary. They also show that the choice of properties for tenants could be restricted, with the consequence that rents could rise faster than anticipated.

Do landlords have more than their fair share of tax reliefs?

The Treasury had said that the changes to how mortgage interest tax relief is made would increase the amount of tax it collects from landlords by £840 million a year when fully phased in. This amount also includes the reduction in tax relief on property maintenance. It’s an awfully large amount of money for landlords to cough up to the taxman.

The amount of extra tax is paltry when compared to the amount of tax relief that landlords will still be able to claim after 2020: a massive £16.7 billion, according to an analysis conducted by London estate agent Ludlow Thompson.

Should you still be investing?

While the new tax regime is a blow, there are still ways in which you can structure your property investment to reduce your tax liability. Comparing one property investor’s rental earnings to another person’s salaried income may not tell the whole story. For example:

  • You can’t split your salary between you and your spouse to reduce your tax bill in the same way you can divide property ownership and rent.
  • You can’t claim expenses against your salary, in the same way, that you can claim expenses against property rental income.
  • And, of course, you must work for a salary. A property portfolio managed by a professional investment property manager pays you a passive income. Sure, you may have to spend a couple of hours a week on your property portfolio, but you won’t have to get up at the crack of dawn not to return home until dusk five days a week.
  • Then there’s the ability to use other people’s money to make money. There’s no other investment vehicle available to investors in the UK that allows you to borrow three-quarters of the capital required and bank the profits.
  • And it’s not just the rental income from which you benefit. UK property has doubled in value on average every 8 to 10 years for decades.

The conclusion is that government policies have made property investment a little more challenging than a few years ago. However, for those investors prepared to explore how to structure their portfolios for tax efficiency, the tax reliefs available are still extremely valuable.

More importantly, you simply can’t get the returns and passive income that property offers elsewhere. Sure, you may pay a little less tax on your money when you earn it as a salary… but you won’t have the time to enjoy your income.

To discover how property investment could make a real difference to your financial wellbeing and lifestyle opportunities, get in touch with Gladfish on +44 207 923 6100. We want you to be successful in property investment, and enjoy the cash flow and profits that we’ve helped hundreds of others achieve to date.

Live with passion

Brett Alegre-Wood


Mortgage, UK Investment Property, UK Landlords, UK Property Tax

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