A new opportunity has arisen for buy-to-let property investors in the form of cuts to stamp duty land tax (SDLT). This has reduced the purchase costs of buy-to-let property.
What do the Stamp Duty Land Tax cuts mean?
These cuts come in the form of an increase in the nil rate threshold for stamp duty land tax in England and Northern Ireland.
This means that buyers will only need to pay SDLT on purchases over £500,000 up until March 2021, compared to £125,000 previously. This could enable investors to make a saving of up to £15,000.
Scotland and Wales have also made changes to their SDLT equivalents. The Scottish Government increased their nil rate threshold to £250,000 – up from £145,000 previously. However Wales have excluded buy-to-let and second homebuyers from their increased threshold of £250,000.
In both Scotland and England, both governments have kept surcharges on the full purchase price for buy-to-let properties and second homes. However, other tax changes from the past few years mean that this opportunity should be reviewed and evaluated by property investors before making a purchase.
What should buy-to-let investors consider?
The increase to the nil-rate threshold means that investors can make a significant saving on SDLT, however changes to capital gains tax rules that have been made over the past few years will need to be considered before making a purchase.
This is because the following changes could affect the charges and allowances for buy-to-let property investment, as well as value:
- If you’re borrowing money to make the purchase, you can no longer offset the interest you pay against the rent you receive for income tax relief at your highest marginal rate. Instead you will be given a tax credit equal to the basic rate of income tax on the interest charged. This could mean that all the rent is included in your income tax calculations, minus non-interest expenses, resulting in more income tax or even tipping over into higher income tax thresholds.
- Capital Gains Tax (CGT) is levied at a higher rate on disposals of non-exempt residential property than on other assets. Higher and additional rate taxpayers face a 28% tax charge once they have used up their CGT annual exemption allowance.
- Any CGT due on residential property is now payable within 30 days of the completion of sale, along with an appropriate interim tax return.
- There is no longer a 10% ‘wear and tear’ allowance for furnished properties, and relief is now only given for actual expenditure.
What does this mean for buy-to-let investing?
As well as this, more changes that affect the buy-to-let industry could be coming in England. For example, last year the government consulted on “resetting the balance of rights and responsibilities between landlords and tenants”.
The consultation’s proposals included the potential abolition of assured shorthold tenancies and an end to ‘no-fault evictions’.
Both of these proposed measures could reduce the value of buy-to-let properties in England. This is because they would reduce the saleability of buy-to-let properties.
The SDLT cut may have also already driven prices up for investors, with Nationwide reporting a 1.7% monthly increase in July 2020. Therefore, in the current market, it may be best for investors to consider taking advice on alternative investment options first.
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