Buy to Let tax changes, what they mean to you?
I have speaking to a number of our landlords recently regarding the recent changes in taxation for landlords and how this was going to affect them. There has recently been a number of confusing press reports about this subject and a lot of landlords are worrying about how this is going to impact their investments.
As a Landlord myself I wanted to be sure that I understood all of the facts first and be able to lay this out insimple terms to our clients.
So what will be the changes, The first change is stamp duty. Currently, you pay no stamp duty on the first £125,000. You then pay 2% between £125,000 - £250,000, 5% between £250,000 - £925,000,10% above £925,000 up to £1.5m and then 12% above £1.5m. The proposed changesmean that as of April 2016, if a landlord buys a property for buy to let, their stamp duty bill will face a 3% surcharge.
In 2017, Landlords' tax relief is going to be affected as they will no longer be able todeduct mortgage interest from their rental income before it is assessed for tax, but will instead get a flat rate of 20% tax credit. This means that thosepaying a higher tax rate will lose half of their relief, while some others will be moved into this bracket and will likely see their tax bill soar.
Why have these changes been made? The reports state that it is a way of trying to slow down buy to let landlords snapping up property, freeing them up for first time buyers. The council of mortgage lenders revealed in November 2015 that the
number of buy to let mortgages granted had increased by 36% in the previous 12 months, whereas mortgages granted to first time buyers was up by just 10%.
So what does this mean for the future of buy to let? I believe that we will see a few landlords initially dispose of their investments but nothing that will great impact the market. With the stamp duty changes, landlords will end up factoring this in to their initial investment and end up retaining property for longer to re-coop some more rental income and in turn maximize their capital growth when it comes to selling.
Personally I can see this have an impact of the value of rents with prices increasing throughout the market.
To summerise, whilst these changes will impact how buy to let works for landlords and for those with propertiescurrently let out, there is an element of recalculating and re-jigging finances. But for new landlords it will become ‘the norm' and will be something that potential landlords will factor in to their investment when doing their calculations.
I have also attached a further information leaflet provided my our accountants Wilkins Kenedy.
If you have any further questions on this matter please do not hesitate to contact me on 01702 606888 or email email@example.com