Are You Investing In Property? - Five Things You Need To Know...
Whether you are a seasoned landlord with a portfolio of properties, an accidental landlord or even if you are only considering your first venture there have been a number of recent changes to the buy-to-let system meaning that investing in property isn't quite as simple as it used to be.
1. Competition is as fierce as ever!
Since Brexit house prices have remained stable with Rightmove reporting an impressive 30% increase from investors between the second and third quarters of 2016. The rumours and hype of a property crash have yet to come true and people are looking to invest into the property market now more than ever.
More landlords = More choice of properties = Lower rental yields? (That’s one theory)
2. CAUTION!! The Mortgage interest tax relief is changing…
Landlords are currently able to deduct interest payments from their income before calculating how much tax they pay. BUT… from April 2017 the tax relief that landlords can claim will be reduced until 2020 to the basic rate of 20%.
Year Rental Income Mortgage Interest Initial Profit Tax Overall Profit
2016 £20,000 £13,000 £7,000 £2,800 £4,200
2020 £20,000 £13,000 £7,000 £5,400 £1,600
Notes: Example based on a rental income of £20,000 a year and mortgage interest payments of £13,000. In 2016, you pay 40% interest on your profit (40% of £7,000 = £2,800), while in 2020, you pay 40% tax on the overall income (40% of £20,000 = £8,000) minus the 20% allowance (20% of £13,000 = £2,600), equalling a total tax payment of £5,400 (£8,000-£2,600).
3. Goodbye ‘wear and tear allowance’
Prior to the changes in April if you were to let a property out furnished you were able to deduct 10% of the annual rent from the profits before any tax was applied. This ruling was allowed even if the landlord did not buy, replace or repair the furnishing at all during the year. This has now all changed, landlords are only to claim for the cost of replacing any furnishing.
4. Stamp Duty is getting more costly
Since April, landlords are now faced with a 3% increase in the stamp duty paid when purchasing an investment property on each tax band. For example, a property that is bought for £200,000 used to cost £1,500 before the changes but would now cost a landlord a whopping £7,500.
5. Right to Rent checks
When renting a property as a landlord you must check that your new tenants are allowed to live in the UK, if they are not you could face a fine of up to £3,000. This ruling will effect private landlords the most as most letting agents will conduct this check for you but always double check!