15 September 2015
Now that the dust has settled post-Spring Budget, I thought we would clarify a couple of changes which will affect some of those who have invested in UK property or who plan to invest in UK property in the future.
First, the Chancellor has abolished non-dom status for anyone who has lived in the UK for the last 15 years, and has stopped the inheritance of non-dom status for UK citizens whose parents are non-dom. These changes come into force from April 2017 and will please those who believe that if you choose to enjoy the UK and live and work here for so long, you should also be contributing to the UK taxation system. Some commentators are saying that this may affect the higher end of the property market, a double whammy following recent Stamp Duty changes, but it is worth remembering that non-doms only make up a small proportion of buyers. London remains an attractive world City to invest in and the property market is driven by many other factors.
Higher-rate tax payers investing in buy-to-let property were dealt a blow with the Chancellor announcing that mortgage interest rate tax relief for buy-to-let investors is to be restricted to the basic rate of income tax. This change, being phased in over four years from April 2017, could lead to a slow down in investment in property because this tax break has always been one of its biggest attractions. If you are a cash buyer it won’t make any difference to you and it probably won’t make any difference to overseas investors, but if you are looking to take out a mortgage, it is a blow if you fall into the higher rate tax bracket. Some claim that landlords may have no choice but to increase rental payments but in today’s climate where rental demand remains high due to a lack of affordable housing stock, this may be an easy task for landlords to do.
Higher rate tax payers planning to purchase buy-to-let property going forward, will need to take into consideration these forthcoming changes. We do however expect to see more and more of our clients setting up limited companies in which to purchase property. Corporation tax is due to go down from 20 per cent to 18 per cent therefore this may be a viable option that makes sense for many. In summary, buy-to-let remains an attractive asset class to invest in, there will always be demand for good quality rental stock and landlords need to consider capital growth in the long term as well as short term rental return.
Mark Hampton is a Director at SPF Private Clients
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