Cornwall Living 2017

Be prepared

Mortgages expert Matt Begley talks to us about the changes affecting the buy-to-let property market.

For over a decade the buy-to-let property market has been a sound investment strategy for many, however, the government’s recent change to 3% Stamp Duty Land Tax (SDLT) on purchases of additional residential properties above £40,000 could signal the end of the buy-to-let boom. The changes to SDLT meant that a landlord buying a property for £200,000 prior to 1st April 2016 would’ve paid £1,500. After the change, this has risen to £7,500. Whilst this will deter many, the situation is further compounded by the new tax legislation which negatively impacts landlords.

According to the Council of Mortgage Lenders, in the first few months of this year, there was a distinct boost in housing market activity, partly attributed to people trying to complete prior to the SDLT changes coming into effect. As a result, the value of buy-to-let loans reached £7.1bn in March – a 142% increase on the year prior. With the sector coming under increasing pressure, the Bank of England’s regulatory arm, the Prudential Regulation Authority, released a consultation paper in April, recommending stronger affordability tests and income verification for borrowers.

Landlords who were previously able to claim mortgage interest relief at the 40% or 45% rate, will now find this restricted to 20% after April 2017. Landlords will also no longer be able to deduct costs such as mortgage interest or loans taken out to improve the property, or fees. Instead, they’ll only receive a basic rate. Not surprisingly, many landlords are now thinking about selling buy-to-let properties ahead of the tax changes that threaten to wipe out most, if not all, of their profits.

The new tax will be phased in over coming years, allowing some time in which to sell, however most will then face a hefty capital gains tax (CGT) liability. Selling an investment property triggers a CGT liability based on the increase in value of the asset during ownership, minus certain costs. If you have lived in the property as your main home for any point of your ownership, that period is discounted when calculating the gain.

Aside from well-known steps to reduce your CGT bill, such as transferring a share of the property to a spouse to utilise their CGT allowance, private letting relief and principal private residence relief, there are some lesser-known strategies that can save you thousands, such as using your pension or an investment vehicle… Obtaining expert advice in this ever-changing marketplace is invaluable.

 HARRIS BEGLEY FINANCIAL PLANNING

The Regent Chapel Street, Penzance TR18 4AE

Office: 01736 366550

Mobile: 07795 144795

www.harrisbegley.co.uk

matt.begley@harrisbegley.co.uk

This month’s features