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Government Crackdown on Property Investors

December 2015

Why are the Government cracking down on property investors, and how are they going to do it?

Recently, the government has taken steps to steer people away from investing their money into property. In the Autumn Statement Chancellor George Osborne said: ‘Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy’.

Back in July, during the Summer Budget, plans were announced to restrict tax relief on finance costs for individual buy-to-let landlords of residential property to the basic rate of tax from the current allowance set at the 40% rate. Buy-to-let landlords have always had the advantage of being able to offset their mortgage interest payments against their income, whereas homebuyers cannot. Starting from April 2017, this will be phased out over the course of four years.

Buy-to-let landlords received another blow in the recent Autumn Budget, where it was announced that buy-to-let and second homes will be hit with an extra 3% stamp duty. While 3% may not sound like a lot, it trebles the stamp duty bill on a £275,000 buy-to-let from £3,750 to £12,000. This announcement is therefore a significant cause for concern for landlords.

Do these new rulings mean property is no longer a viable investment?

Potentially. For many years people have felt that putting their money into a pension doesn’t yield as many rewards as investing it into property, and this may well have been the case. However, this seems to be shifting, and pensions now seem like the safer place to put your money. This of course, is the government’s intention. The Government are seeking to incentivise people to invest in pensions rather than property.

What about existing landlords, what can they do?

There are a number of options available to existing landlords who wish to continue their investment in property. One of these is to setup a limited company and drop those properties into the company, so that the company becomes the owner rather than the landlord. This by-passes some of the rules, but it does have some drawbacks, such as legal fees. You will need to seek professional advice on this, as this may or may not be a good option depending on your situation (number of properties, value of properties etc.)

If not property, where can I invest my money?

With all the recent changes, we recommend that people look more closely at investing their money into pensions, rather than property. To discuss any of the matters mentioned in this blog, please contact us.

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