Is there a future for buy-to-let?
The recent stamp duty changes for buy-to-let landlords have come as a quite a shock to many. The changes mean that for anybody buying a buy-to-let property or a second home they will have to pay an extra 3% stamp duty. In monetary terms this means if you are buying a house for £250,000 you will pay £10,000 instead of just £2500.
This has all been implemented to try and raise 3.8 billion in tax and to help first time buyers get on the property ladder by putting off investors from buying the affordable homes on the market.
Laura Fiddes-Baron New Business Manager at Oulsnam Lettings predicts this is going to have a significant impact on both investors and tenants. I think the market will be really busy in early 2016 due to thrifty investors trying to buy properties prior to the changes in April. The market will then probably quieten down for the rest of the year with an awful lot of investors being deterred from having to find such a lot of purchase costs upfront. There will of course still be buyers that are not investors or having second homes but we think it will noticeably quieter for the rest of year with less investors.
For tenants, I predict that rents will rise significantly more than in previous years due to the following; Once the early rush of scooping up suitable buy-to-lets before April has finished there will be less investors buying and so less properties on the market. Less properties means that there will be increased demand which inevitably means tenants will be forced in to spending more. Landlords that really consider their rental properties as a business will be more inclined to keep asking for significant rent increases to re-coup the huge amount they have had to spend on stamp duty.
The thing that I would urge landlords to remember is that at the moment they can offset the stamp duty they paid for the property at the beginning against the capital gains tax they pay at the end.
Another consideration is to invest in property through a limited company for which a number of new tax charges will not apply. Costs can be deducted from income but then corporation tax will apply as well as tax on the dividend. Also, the government are to consult, but at the moment for companies there maybe be an exemption from these new stamp duties where 15 or more rental properties are owned. There maybe be major advantages to using a limited company but advice should be sought from a financial advisor on this.
Finally, remember there will be less investors keen to buy after the April changes which means more property available and therefore there will be less of a fight and hopefully more of a deal to be had. When taking this into consideration it means that for the sensible investor, there is still a future for buy-to-let.