by Don Wernham
Just when you may have thought it could not get much worse for people wanting to purchase property for investment, it has.
Coming into effect in April this year are a host of new more penal tax rules if you are planning to buy property to rent out. Up until now you could purchase a 2nd home using a mortgage with attractively low interest rates and claim tax relief on your mortgage interest payments. Well from April you can no longer do this. The proportion of finance costs available to offset rental income at the marginal rate of tax is reduced as follows:
• 2017 to 2018 75% available, 25% relief at basic rate
• 2018 to 2019 50% available, 50% relief at basic rate
• 2019 to 2020 25% available, 75% relief at basic rate
• 2020 to 2021 100% relief at basic rate
Put simply, in 2021 you will receive rent but no longer able to offset any of your finance costs, if you are a higher rate tax payer. The finance costs not only include mortgage repayments, but also interest on loans to buy furnishings, and fees incurred when taking out the loan.
In addition, you now pay 3% stamp duty (another tax) on any loan to purchase a 2nd home valued at a miserly £40k. And finally, the treasury get you at the end when you sell the property with 28% Capital gains Tax.
And if all of that is not bad enough radical plans backed by Jeremy Corbyn to allow private tenants to have the right to buy their homes from a private landlord. Now I know people could say, but that’s just Jeremy Corbyn and he’s not likely to be elected. But remember it was a conservative Prime Minister that introduced the right to buy for council tenants in the 1980’s. And if private landlords were forced by law to sell their property (possibly at reduced rates – like local authorities were encouraged to do) wouldn’t that help the governments housing shortage?
So then suddenly it isn’t as daft an idea as you first thought. But its not an exciting thought if you have ploughed all your efforts into building a property portfolio for your retirement, is it?
*Disclaimer – Please note these views are my own and do not constitute advice.