PROPERTYMATTERS
Direct investment in residential property has always been a popular form of investment. Buy to let The UK property market, whilst cyclical, has proved over the long-term to be a successful investment. This has resulted in a massive expansion in the buy to let sector. Traditionally, buy to let involves investing in property with the expectation of capital growth with the rental income from tenants covering the mortgage costs and any outgoings. However the gross return from buy to let properties, the rent less expenses, can change. Investors also need to take a view on the likelihood of capital appreciation exceeding inflation. Investors should take a long-term view and choose properties with care. Practical Tip When choosing between investments always consider the differing levels of risk and your requirements for income and capital in both the short and long term. An investment strategy based purely on saving tax is not appropriate. Which property? Investing in a buy to let property is not the same as buying your own home. You may wish to get an agent to advise you of the local market for rented property. An agent will also be able to advise you of
restricted in the case of residential property, repairs, agent’s letting fees and the cost of replacing furnishings. Restriction of relief for finance costs on residential lettings The amount of income tax relief landlords can get on residential property finance costs is restricted to the basic rate of income tax. Relief is given by way of a basic rate reduction rather than the costs being deductible in full from the rental income. This restriction to a basic rate reduction has been phased in over four years from April 2017. This reduction may be subject to further restrictions where property or other non-savings income is insufficient. Main residence An individual’s or married couple’s only or main residence is generally exempt from Capital Gains Tax (CGT). The exemption extends to grounds of up to half a hectare provided this is not used for any other purpose. There must also be clear evidence of occupation as a main residence and not just ownership. Tax Planning Larger groundsmay also be exempt, as can the sale of part of the garden or grounds for development. However, professional advice is recommended to plan for the best outcome.
the standard of decoration and furnishings which are expected to get a quick let. Letting property can be very time consuming and inconvenient. Tenants will expect a quick solution if the central heating breaks down over the bank holiday weekend! Do not cut corners - a correctly drawn up tenancy agreement will ensure the legal position is clear. Devolution of Property Taxes Stamp Duty Land Tax (SDLT) applies in England and Northern Ireland, Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales. Higher rates of SDLT, LBTT and LTT apply on purchases of additional residential properties. The rates are 3% above the SDLT rates and 4% above the LTT and LBTT rates. The higher rates potentially apply if, at the end of the purchase transaction, the individual owns two or more residential properties. There are some exemptions from the rules. One of these covers the replacement of a main residence within certain time limits. Please contact us for
further advice on this area. Tax on rental income
Income tax will be payable on the rents received after deducting allowable expenses. Allowable expenses include mortgage interest, which is
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Property Matters
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