Following various changes and added uncertainty related to the buy-to-let property investment market, those considering making an investment may be reconsidering. With tax changes and more in depth scrutiny from money lenders before granting funds for an investment, less and less investors are looking to grow their portfolio in ways that recent years have seen.
Despite this, property investment is still a fantastic market to get involved with, and providing that you conduct the relevant research, you can still benefit from strong rental returns over a long term investment. If you are unsure whether or not to try your hand in property investment or you are wondering if you should continue to grow the portfolio that you already have, then there are a number of things that you should consider first.
Market Research is Essential Now More than Ever
It has never been more important to conduct your own research into every aspect of the market and your potential investment, as this can be where money is lost or made. Without research, you are going into the investment world blind and this can lead you to make decisions that may well be detrimental to the success of any investments that you make.
Your research should include considering different types of investments, the location of your investment, who your target tenants are and also the financial aspect of the investment. By considering the investment type and all aspects of a property, you can be sure about what you want to invest in, and how you might go about it. Research into the finances could mean that you begin to get an idea about the investment, such as how much it might cost and how much profit you might be able to make.
The Impact of Tax Relief Changes
As of April 2017, tax relief changes are being strategically implemented, whereby tax relief that landlords can claim is reducing year on year until 2020 where it will be replaced with a new tax credit system, set at 20%. This means that all rental income that you generate has to be declared, and will be subject to tax. Such changes are likely to have a significant impact on the money that landlords can generate, and so you should consider this as part of your planning for your potential investment.
Creating a Limited Company
A big issue that investors face is the changes to tax relief, and how that may impact their investments going forward. One way that investors look to combat this is by setting up a limited company as the tax relief changes don’t extend to them. However, it is thought that the setting up of a limited company for property investment is only beneficial to portfolio investors, so research is needed to determine whether a limited company is the best route for you to take.
Changes to the Stamp Duty Land Tax Charge
Recent changes to how the Stamp Duty Land Tax is charged mean that you need to give this tax charge special consideration. The changes mean that an additional 3% will be applied to the current stamp duty rates that apply to main residences, even if your main residence is located outside of the UK. To make matters worse, this 3% charge applies to the full purchase price of your property, and isn’t tiered like the current charges. The current charges are as follows:
- 2% on properties valued between £125,001 and £250,000
- 5% on properties valued between £250,001 and £925,000
- 10% on properties valued between £925,001 and £1,500,000
- 12% on properties valued over £1.5 million
The 3% additional charge is added to each current charge, and applies to all four different property price categories, making the new charges for buy-to-let investors as follows:
- 5% on properties valued between £125,001 and £250,000
- 8% on properties valued between £250,001 and £925,000
- 13% on properties valued between £925,001 and £1,500,000
- 15% on properties valued over £1.5 million
Hopwood House are a specialist property investment company with a wide range of investment opportunities in the buy-to-let, student property and care home markets in the UK and overseas.