What Buy To Let Tax Changes Mean for Landlords and Property Investors

Property has long been seen as the safe way to invest, but changes to taxation on buy-to-let property means that many are now re-thinking their investment strategy.

In recent years, those looking to invest their money in a safe way that will give them a healthy regular income have put their money into property. Taking the role of a landlord meant that you could enjoy a healthy annual income and hold an asset which could underpin future plans such as retirement.

What Taxes Will You Pay?

The first form of taxation change that buy-to-let landlords found themselves subject to was a 3% stamp duty surcharge introduced in 2016. This was coupled with the abolition of wear-and-tear allowances, and now higher rate tax relief on mortgage interest repayments is being phased out.

Previously, the mortgage interest on a buy-to-let property investments could be deducted from the rental income so higher rate tax payers would pay 40% on the net amount. The changes mean that the amount of tax that is now payable will increase until 2020, when landlords will be paying tax on the rental income and only receive a 20% tax credit.

Market Changes

There are fears that these extensive changes will mean that many decide to sell the properties in advance of any more taxes that are yet to be announced and stricter affordability tests. Some investors have found that there are benefits to buying property through a limited company, but this is not a practical or workable option for some landlords due to the expense.

First Time Buyers

The investors who are seeing a benefit from the recent changes are first time buyers. A decrease in investment from those looking to make money means there is less competition in the property market for those trying to actually buy a home.

The registrations of first time buyers have seen massive increases lately, particularly in London, with purchase prices for first time buyers actually falling as well as the average age of the buyer.

Property Markets

As many buy-to-let landlords chose to invest in property as an alternative to savings, many will be angered by the low interest rates of current savings accounts.

The growth in house prices is now starting to slow, and when combined with stagnant wage growth this has meant that the buy-to-let market was sure to see the end of its heyday before long. If base rates finally start to rise in order to combat inflation, the property market will feel the impact immediately.

The stocks and shares market now appears to be outpacing property when it comes to investment returns, and is also cheaper and easier to get into. As there are no income and capital gains tax when you use your annual £20,000 individual savings account allowance, stocks can offer a more profitable income at the moment.

However you choose to invest your money, it is important to remember that there are swings and changes in every market, so nothing will ever be guaranteed.