Well the last few weeks have been rather hectic as Epsom landlords, some who use us to manage their properties and other landlords who just read our Epsom Property Blog, have been sending me emails or picking the phone up to me not just about new properties to buy, but also about the new rules on buy to let taxation announced in the recent budget. George Osborne confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments, on their buy to let (BTL) properties, would be reduced over the coming years for higher rate income tax payers. The Chancellor said the tax relief that private buy to let landlords (who pay the higher rate of income tax) would change in 2017 from the current 45%/40% and would steadily reduce over the following four years to the existing 20% by 2020.
With 19.4% of residential property in the area of Epsom and Ewell being privately rented (as there
are 2,450 privately rented properties in the town), these changes are potentially something that will
not only affect most Epsom landlords, but also the tenants and the wider property market as a
whole. The choice of rental properties could drop, especially at the top end of the market which
could push up rents.
However, Epsom landlords could protect themselves by reassigning one or more rental properties
into a company structure (e.g., a Limited Company, Partnership or Sole Trader) and by doing so, the
total tax paid is greatly reduced, because a company only pays tax on the profit. Nonetheless, before
everyone goes off setting up companies for their BTL portfolios, it must also be noted, if a sole trader
firm is started, stamp duty needs to be paid, yet if the owner is in business with a partner, they could
enjoy some stamp duty relief. The biggest tax variation is Capital Gains Tax (CGT) where the tax bill
will be much higher when you come to sell your portfolio. In essence, by going into business with
your BTL properties, you will potentially have a modest stamp duty to pay when you start, but you
will have a lot less monthly tax to pay, irrespective of the interest rate, but the CGT bill will be much
higher when you come to sell ... as you can see, it is not a ‘get out of jail card’. Now it must be
remembered, I am not a tax advisor, so you must take advice from a qualified person.
Those planning to purchase a BTL property will have to factor these new rules into their calculations,
and this could affect the offers they are willing to make. However, I am not that concerned, as the
scaremonger reports fail to see the fact that two out of three BTL properties that have been bought
since 2007 have been purchased without the support of BTL mortgage. With those two thirds of
landlords paying cash for the purchase of their rental properties, that means two thirds of landlords
will be totally unaffected by the changes.
So what of the future? The British love their Bricks and Mortar, it’s an asset that they can touch and
feel and has a 70 year track record of capital growth that has out stripped inflation. Buy to Let will
still be attractive to Epsom investors and let me explain why. If you invested £80,000 in Epsom
property in September 1987, today it would be worth £314,836. If you had invested the same
£80,000 in to the London Stock Market (the FTSE 100 to be exact), it would be only be worth
£229,012 today, whilst Inflation would have taken the original £80,000 and pushed it up to
It’s true some central London landlords relying solely on the tax breaks rather than high yields may
be forced out of the market, but even those landlords could seek to recoup any losses by increasing
rents. However, those landlords may leave the market and this could constrict the availability of
rented houses even more than it is already, increasing rents and thus pushing yields even higher for
landlords and BTL investors still in the market... thus attracting new landlords into the market
because of those higher yields.
The reality is, there is too much demand and not enough supply of homes for people to live in, in the
town. Official figures show the population in Epsom and Ewell is rising by 804 persons per year (i.e.,
demand rising), but only 215 properties are being built each year (i.e., supply is low). This sets up the
Epsom (and UK) property market to continue to create strong and steady returns, irrespective of any
tax loophole being there (or not as the case maybe).
If the demand is there, I am happy to organise an informal Buy to Let seminar with a local Epsom
accountant one evening, whereby they can show you the options available and what might be best
for you. Therefore, if you are interested in attending, please drop me an email to
email@example.com and we will be able to get something organised very soon.