Important Changes to Buy To Let Market

January 11, 2016 by Rob Kahl

Important Changes to Buy To Let Market

Last Autumn our illustrious Chancellor of the Exchequer produced his usual Autumn statement and said that it was still tough and we would have to continue to tighten our belts and it was all because of what they inherited from the previous government years ago. You know the normal stuff that we don’t take any notice of any more.

Well, there were a couple of bits that because they weren’t going to come in to place until April 2016 we didn’t take much notice of but, time is marching on and if you weren’t aware they could have a dramatic effect on your plans so please take note.

The changes will be to the buy to let market and second home purchasers.

The first one is to stamp duty. If you are buying a property to rent out of for a holiday home there will be an additional 3% stamp duty applied. So if you are buying a 2 bedroom flat to rent out top up a pension or a long term investment for the kids at present you would pay 0.75% stamp duty which equates to £1,500. After April 1st there will be an additional 3% to pay taking the same flats stamp duty to £7,500.

There is another group of people this will affect as well. If you are thinking of moving out of your existing property to a new home but keeping your existing property rather than selling then you will have the same additional stamp duty on the new house you are buying, even if you are going to live in it. This means in a similar scenario, if you have a flat worth about £200,000 that you are going to keep for a rental property and you are going to buy a new house for £500,000, currently you will pay 3% stamp duty, i.e £15,000. With the new system after April you will have to pay an additional 3% taking your stamp duty to £30,000, quite a difference!

If that wasn’t enough there will be some big changes to the tax implications as well. At present if you have a mortgage on your investment property then you can claim back the interest payments of your mortgage against your income. The interest payments on buy to let mortgages make up the majority of the payments so this can be very useful when calculating losses against rental income. This is all being scrapped. You will have to declare all of your rental income as profit and you can only off set costs such as management charges, service charges and work that you have carried out to the property.

Also if you are lucky enough to be a top rate of tax payer then the maximum tax relief available to landlords will drop from 45% to 20% as well. And the good news keeps on coming. If you think enough is enough I am going to sell my investment properties and get out of the buy to let market then at present you have until the end of the financial year to pay your Capital Gains Tax giving you a nice little cushion. Even this is being taken away, this is changing to 30 days, you will have to settle your Capital Gains Tax within 30 days of you completing on your sale.

Some of these changes aren’t coming in straight away and are being tiered over the next couple of years but there might be a tiny glimmer of hope if you are thinking of buying a property to rent out or are a current landlord.

There is a growing group of property professionals and landlords that are lobbying the government to change their minds. Never let it be said that the government are liable to the odd U turn but we can only hope that with enough pressure they might see sense.

This article is by Rob at Scott & Stapleton. Tel: 01702 471155.

To read Rob's previous articles please see http://www.leigh-on-sea.com/tag/listing/blog/property