Late last year the chancellor announced an additional 3% stamp duty tax would be implemented from April 2016, levied on the purchase of most buy-to-let property investments. So does that mean that people should rush around now in order to take advantage of the current regime? People often find themselves doing something that they might not necessarily do otherwise, purely because they don’t want to miss out. For a long time, retailers have told us things like ‘buy now whilst stocks last’, or ‘sale ends soon’ in order to get us to buy their products, and whilst this tax change wasn’t a sales pitch by George Osborne, it has had the same affect.
Just because buy-to-let investment is cheaper to do now than it will be in the future, we still need to consider the same principles as we were doing before the changes were announced. We need to ask things like can you afford to support the mortgage if the tenant doesn’t pay the rent? What are the initial and ongoing costs? Do you have the time to manage the property?
There is one extra consideration to think of though, and it’s the one that has made me change my own plans, and that is what will Mr Osborne’s next step be? He has made it clear that he doesn’t like the idea of small time landlords, and he had previously announced changes to the tax relief system for higher rate earners. I’m not sure he is done tinkering with this area yet, and I don’t want to invest in property until I think he has. There are plenty more things he can do to tighten the reins, and he has shown already that he isn’t frightened to make radical changes, such as the ones he has brought in with the pensions market.
In reality an extra 3% stamp duty tax isn’t a deal breaker in itself. If you spread the cost over an investment period of say 20 years, it works out at just 0.15% a year. And when you consider that most people pursue buy-to-let without a knowledge or a consideration for the mortgage interest rate that they will pay, then 0.15% per year isn’t that significant. It may seem like a big issue now because it is a change, but once the dust settles it will become the norm.
Like I said though, it is the direction we are moving in that is worrying me, not this change alone. There are of course other ways to invest, which as always, should also be considered. The new pension freedoms have made pension savings look much more attractive than they were, and stocks and shares ISAs are an alternative for those who need access to their cash earlier than age 55. Your investment options aren’t bricks and mortar or nothing, there are a wide range of investment vehicles to consider.
Jason Hinde FPFS, Cert SMP – Chartered Financial Planner
18th January 2016
“