There has been a lot of reports about this and a lot of landlords are worrying about how this is going to impact their investment, so I thought I would have a look into it and outline some of the facts.
So, let us start by looking at what is going to be changing. 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 changes mean 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 to deduct 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 those paying 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.
Landlords are also facing a change to the way they pay tax when they sell their buy to let properties. At present, capital gains isn't due until the end of the tax year, but from April 2019 landlords will have to pay their capital gains bill within 30 days of selling the property.
A lot have landlords have asked, why have these changes been made? The reports say 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 sell up, who can't be bothered with the hassle of it all, but after the initial huffing and puffing, it will all settle down. With the stamp duty changes, landlords will end up factoring this in to their initial investment and end up hanging on to the property for a little bit longer to recoup some more rental income and in turn maximize their capital growth when it comes to selling.
Some banks have accounts whereby they are giving cashback on their direct debits and or on balances between which may help with the finances, might be worth investigating this with your bank to see if it is an option.
In summary, whilst these changes will impact how buy to let works for landlords and for those with properties currently 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. The best bet is to have a chat with a financial advisor as they will be able to point you in the right direction when it comes to Tax!
If you would like to know more about investing in property in Chelmsford, I would love to talk to you, our office is on Duke Street. We also have many more articles about the Chelmsford property market available at www.chelmsfordpropertyblog.com