Cuts to stamp duty land tax (SDLT) and its Scottish equivalent have reduced the purchase costs of buy-to-let property, but property investors should also evaluate other factors.
In July, the Chancellor increased the SDLT nil rate threshold in England and Northern Ireland to £500,000 until 31 March 2021. The equivalent thresholds were then increased to £250,000 in Scotland and, for main home buyers only, in Wales. All the countries kept their full price surcharges (4% in Scotland and 3% elsewhere) on buy-to-let (BTL) purchases.
While the tax saving can be significant, investors should remember that there are earlier tax changes to consider:
- If you are personally borrowing to make the purchase, then the interest you pay cannot be offset against rent received. Instead you are given a tax credit equal to 20% of your interest.
- Capital gains tax (CGT) is levied at a higher rate on disposals of non-exempt residential property, which can mean a 28% tax charge.
- Any CGT is now due within 30 days of completion.
More changes could be coming in England, as last year the government consulted on “resetting the balance of rights and responsibilities between landlords and tenants”.
If you are considering investing in BTL property in the current market, take advice on alternative investment options first. As ever, you shouldn’t let the tax tail wag the investment dog.
The levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.