Great Britain, as a nation, is obsessed with mortar and bricks, but financial experts warn investors of unfavorable days ahead.
This is purely because both, conservative chancellor and the Bank of England tried to eliminate the property bubble market that has been core reason for inflation in the nation. Since April 2016, new tax related forces have been implied, only to bring bad news for landlords.
Read along to find out four ways that has led to unfavorable tax changes for buy to let landlords:
There is stamp duty on buying secondary properties
Do you have any property besides your primary home? Well, if so—the stamp duty for any such property has mounted. If you have buy to let properties that is worth more than 40,000 UK pounds, stamp duty applicable on them is an additional 3 percent.
So say, if your buy to let property investment is 500,000 UK pounds, your stamp duty will be 6 percent (30,000 pounds!)
There is income tax relief on mortgage interest cut
Up till now, the tax reliefs on mortgage interest for buy to let landlords was around 45 percent (marginal rate of the income tax), it is now only at 20 percent. For basic rate tax payers, this is no change, however, it has increased income tax substantially.
There is tax on buy to let turnover—not on income
This might not be an oblivious change, but it sure is a crafty one. This tax makes sit expensive for buy to let landlords. Let’s look in to an example to comprehend the tax:
X is a buy to let landlord who currently rents out a house worth 250,000 pounds and earns a gross rental income of around 4 percent. So, that leaves him with 10,000 pounds in a year from rental income. Before the tax being implied, X could deduct 10 percent for the wear and tear, without being accountable for any bills. However, now he needs to have a proof in order to show any expenses incurred for maintenance. Let’s assume, X did not pay a single penny in maintaining the house since it was new. So now, the 10 percent he could have deducted (before new tax implied) can now not be used.
With changes in tax, X is still receiving 10,000 pounds from the rental income but paying out 40 percent (4000 pounds) out of it! At the end of the year, X is badly affected by the new tax laws.
The capital gains tax remains unchanged
While capital gains tax remain unchanged, all other investments are now more lucrative.
So, if you own a property/house then it still holds attractiveness as there is no capital gains tax if you sell it off. However, for buy to let landlords it is time to switch for other types of investments to look out for better opportunities in the future.