Techcellence: Buy to let landlords – look away now!

Some of these changes will apply to every private landlord.

• Stamp duty land tax (SDLT) changed from ‘’slab’ to ‘slice’ in 2014. Whilst this removed the cliff edges in terms of % paid on purchases,the incoming system reduced or left unchanged SDLT for residential properties from £125,000 to £935,000 but raised it for properties above £935,000.
• Effective 2016, those purchasing a property (or part of one) in addition to any already owned for £40,000 or more are subject to an extra 3% SDLT. This took the top slice for values above £1.5m to 15%
• Similarly effective, but in 2021, a further 2% applies to an overseas buyer. This means that an overseas buyer purchasing and additional property in the UK (even if none are owned in the UK before the purchase in the UK, only overseas) a staggering extra 5% applies.
• From April 2017, the mortgage interest tax relief landlords could claim has been phased out for HRT, a move that has hit some landlords with mortgaged properties very significantly. A new system, equivalent only to BRT relief remains.
• In April 2016 the automatic ‘Wear and Tear’ 10% allowance was removed. This was replaced by the ‘Renewals Allowance’ applying only for fully furnished properties and the actual cost of replacing furnishings, furniture and fixtures, on a like-for-like basis, a far less valuable allowance for most landlords in most years.
• From April 2017, non-domiciles who had been well advised purchase UK residential property through offshore companies to obviate IHT on them were brought into the UK IHT net, including those structures set up before that date.
• Since April 2015, non-residents disposing of UK residential property have been subject to UK CGT from that date. The previous position still applies to UK shares and funds, that non-residents continue not to pay UK CGT.
• Similar to the above, since April 2016 there are different tax rates when it comes to capital gains tax on residential property compared to shares and mutual funds. Shares and mutual funds are subject to capital gains tax at 10 or 20%, whilst property suffers significantly higher rates of 18 and 28%
• Lettings relief of up to £40,000 per owner (i.e. £80,000 per couple) was available where a property had been rented out at some point during the period of ownership (but not for the whole period) until April 2016. This remains available, but only where the owner of the property has been living at the property with their tenant. This means that lettings relief has effectively been abolished for most landlords.
• Final years relief, an exemption from CGT for the last 36 months of ownership even where the owner has not occupied the property during this period, has been watered down twice, first to 18 months and from April 2016 to just 9 months.

Finally, from an investment principles perspective, liquidity and diversification challenges should not be ignored, and as interest rates rise, the cost of finance may also negatively impact overall returns.

And for those with an eye on IHT, residential property is the most difficult asset to plan with.  Holding out on a sale until death may alleviate an 18 or 28% charge on profit, but expose the full value to IHT at 40%. Those overweight on property, and tax savvy, will recognize the tax advantage of selling with an 18 or 28% liability on a smaller gain earlier, in order to plan for IHT, to potentially remove a 40% liability on the full value upon death.

A well-diversified and professionally overseen portfolio of equity, debt and alternatives, perhaps involving trusts and assets benefiting from Business Relief (and potentially combining the 2 in the same element of planning) can meet many investors post tax investment return objectives.

Investments and the income from them can go down as well as up, you may not get back what you invest.

This document is based on our current understanding and interpretation of publicly available information and is therefore subject to change. It is intended as general guidance only and is not a definitive analysis of the topics covered. It is not legal, regulatory or financial advice so must not be relied on as such nor as a substitute for taking specific advice tailored to your own individual circumstances.