Buy-To-Let Investors Not Happy With New UK Stamp Duty

From April 6th 2016, everyone buying a second home – for whatever purpose – is subject to higher taxes (stamp duty land tax, SDLT). Rates are levied at a new 3 per cent on homes between £40,001 and £125,000, then 5 per cent up £250,000, and then 8 per cent up to £500,000, with rates stepping up above that. Clearly, this is likely to have a significant impact on purchasers of higher-value houses, but there are many ‘apartment’ properties available where the cost of individual units is well below the £125,000 figure, limiting the extra cost to (just!) an additional £3,000 or so – far less significant than the extra £11,000 that you would be paying on a low-cost house at around £270,000.

Some other of the introduced changes also hit owners of ‘second houses’ (as opposed to ‘apartment unit owners’) quite heavily: the wear and tear allowance (where annual rental income has, effectively, been granted a 10% allowance, whether or not any costs were incurred) has been scrapped and replaced by allowable deductions only in respect of moneys actually spent. In addition, mortgage tax relief is being reduced from 2017; this will alter the balance when you are considering funding a new acquisition by taking a mortgage, using other funds or by selling an existing property. These changes are all quite complex and you really need expert individual assistance to look at your own circumstances; for example, setting up a company to own your properties may be an effective vehicle for some landlords, but not for others. Timing of purchases or sales, funding mechanisms and ownership issues (sole, joint names, etc) all need to be considered.

Another onerous requirement on landlords is to ‘identity check’ prospective tenants: to ensure that each tenant is entitled to be in the UK. This will become a major issue for some buy-to-let investors; the additional checks are time consuming to do, though in many cases they will be done by your letting agent or by specialist companies – but at a cost! Owners of ‘apartment units’ will usually find that this service is included within their existing management agreement and, in the case of student accommodation, may be handled in conjunction with the relevant university.

However, the press always seem to major on the negative issues; they forget the one crucial issue, which is that the underlying asset, the property, should in most cases appreciate substantially over time! Although, in the worst cases, you may only just cover running costs, the appreciation of your property makes it all worthwhile.

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