COVID-19 has had a significant impact on the property market with a decline in house prices, cheaper borrowing, and lower interest rates. As an investor, the potential returns from residential property however remains an attractive opportunity.
Whether you are looking for your first investment property or to expand your existing property portfolio, many investors are considering acquiring property during the lockdown due to the number of initiatives available from the Government.
Last year, the Government announced a whole host of schemes which have made purchasing a property even more desirable. In July 2020, the Chancellor announced a temporary stamp duty tax holiday that cut the rate of stamp duty to 0% for all properties under £500,000. Following the Budget last week, the Chancellor announced a staged withdrawal of this measure by extending it to 30 June 2021, then introducing a nil-rate band of £250,000 from 1 July 2021 to 30 September 2021. For any investor, this is a substantial benefit as it can save them up to £15,000 in tax, but with all the other accompanying rates and reliefs, it shows that now is the right time to invest and obtain a healthy return in the years ahead.
Interest rates are at an all-time low making the cost of borrowing cheap. As it is not expected to increase anytime soon, this could be the leverage investors need to grow their portfolios and fully maximise the return on their investments.
As a property investor or landlord, it is also important to note that no mortgage interest cost can be deducted from rental income after 6 April 2021. Instead, landlords will be given 20% tax credit on the whole interest amount which will significantly impact the tax bill for higher rate taxpayers who earn more than £50,000 a year.
In this scenario, it might be more tax efficient and safer financially to operate the property portfolio as a limited company. Should an investor wish to grow their property portfolio and benefit from the lower corporation tax rate, it might be worthwhile reinvesting the profits within the company for further development. The company can then also be used as a vehicle for inheritance tax planning.
Transferring the properties into a limited company will normally trigger capital gains tax and stamp duty land tax. However, both taxes can be avoided if there is a demonstration of property trading and the business is run as a partnership.
On top of the reliefs mentioned above, considerations need to be made for the current climate and measures announced in the Spring Budget. With the tax simplification review taken place and revised rates due to be implemented over the course of the upcoming months, it may be advantageous to act now and use the initiatives to the fullest extent before the new changes are introduced.
How can Dunkley’s help?
As you can see, purchasing a property in the current climate is a very attractive investment opportunity. You can not only benefit from the Government initiatives available but can also embrace the situation and help boost your business or property portfolio.
With our help, you can fully maximise the return on your property investments. Our specialist tax team have years of experience behind them and can provide the expert guidance you need to successfully purchase a property, take advantage of the initiatives available and plan for the future.
To see how Dunkley’s can help you, please contact Chloe Debiaune on 01454 619900 or email firstname.lastname@example.org.
Chloe Debiaune – Tax Client Manager
email@example.com / 01454 619900
Woodlands Grange, Woodlands Lane, Bradley Stoke, Bristol, BS32 4JY