We again have been hit with the government bashing landlords with additional taxes. We will all have opinions and some will change as the dust settles. A lot of landlords are in uproar calling this the end of buy to let especially after the damaging tax changes from the last budget meaning that there will be no tax relief on mortgage payments as it is reduced gradually over the next 4 years.
The stamp duty rates are
|Property or lease premium or transfer value||Before April 2016||After April 2016|
|Up to £40,000||0%||0%|
|From £40,000 to £125,000(the portion from £40,001 to £125,000)||0%||3%|
|The next £125,000 (the portion from £125,001 to £250,000)||2%||5%|
|The next £675,000 (the portion from £250,001 to £925,000)||
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%||13%|
|The remaining amount (the portion above £1.5 million)||12%||15%|
This new stamp duty tax will cost an extra £1350 on a property valued at £85,000
The new stamp duty tax apparently imposed to bring it much needed funds to help first time buyers and house builders is a 3% tax on you purchasing any additional buy to let property’s. This in itself certainly shouldn’t affect your decision to increase your portfolio as in real terms all this will do is mean that the return on your investment will only be delayed by 3 months or so. It has the potential to seriously distort the property market, as landlords and second homeowners rush to beat the April deadline and then go quiet. If you do continue to increase your portfolio, when it comes to selling up, you can offset purchase costs against any eventual capital gains tax – and that includes stamp duty. So, while you will get whacked with a big bill now, if a buy-to-letter eventually sells at a tasty profit, you can claim stamp duty back later on CGT. The Treasury confirmed to last night that this still remains the case. The question is, will it one day face the axe?
These changes only effect purchases over £40,000 being realistic these are not available in many areas and the areas where they are come with their own problems as far as renting them out is concerned. These areas are not in high demand by first time buyers and will over very little capital growth as their prices will remain low as many will try to purchase below the threshold
The majority of our landlords in the Manchester area hold property under the value of £125,000 as the rental returns in this area offer excellent yields. These properties are in demand because they offer some capital growth and great yields. I suspect there will be a small spurge in the market (especially in the auction rooms) between now and April from landlords buying however this will be short lived. I do think long term that these properties’ will rise in value as many landlords from the south and overseas who want to increase their portfolio move north for the better yields.
The impact of the removal of tax relief on mortgages will have an effect on the housing market over the next four years as some landlords decide to sell but along with the demand from first time buyers entering the market and increased interest from buyers from overseas and the southern market I see a continued increase in house prices of around 5% a year. This means house prices doubling over a 15 year period.
I see a larger increase in rental demand and along with the squeeze on landlords margins these cost being passed onto tenants resulting in an increase in rents. If rents increase at 5% a year that will also mean your rents doubling over 15 years also.
Imagine your current property/properties in 15 years’ time receiving double the rent you received at present and being worth twice as much. Taking into consideration inflation not expecting to increase by more than 2% it should leave landlords in comfortable position.
In the long term we will all get different visions from our crystal balls but we must always remember some golden rules.
Property investment is a stroll not a jog. Property investment is a long term investment.
There is a continual increase in demand for rental properties as we are not building enough and we have an ever increasing population mainly being caused by immigration at present
Manchester is a thriving city and it boundaries are forever increasing therefore your properties that are within easy reach of the city become more in demand and especially at the lower end as those people who work in the service industry in Manchester need easy access at inconvenient times at affordable cost but the increase demand will increase their rental cost which increases yields and attracts more investors again resulting in increased values.
We can’t predict what the chancellor is planning for the future or predict how the changes will affect things however we will always have to remain flexible to move with the changes and adapt to the changes
We at Brentwood lettings are always happy to help and give you our opinions however it remains the case that you must take financial advice for tax planning from the experts